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P. Devarajan

Some time ago a senior office bearer of IBA had talked of a cut in PLR by 0.50 percentage point, but then that is being taken as a one-off statement.

GROWTH in non-food bank credit in the first quarter (April-June) 2003 can be said to be flat going by talks with a few bankers in nationalised banks. There have been no fresh capital investment proposals, with most corporates still unsure of the future.

Most entities carve out working capital limits with banks for comfort, but access cheap market funds directly. CPs and NCDs are not the preferred routes, with some of the lead banks offering short-term direct loans at 5-6 per cent. Some sectors like steel, cement and automobiles are showing life and bankers hope the good monsoon will hold till September for some revival in demand for industrial products.

Telecom is getting a bit touchy, as low customer rates may not be able to service sizeable bank loans taken in the past. Good rains in Rajasthan have made the State a bankable proposition, says the Chairman of a nationalised bank.

"Fresh loans and repayments could be better in Rajasthan after about four years of drought," he adds. Another banker was more candid: "All of us have become construction workers trying to sell housing loans. But even here the private players seem to be beating us. In the coming years, we will have to search for assets in rural and semi-urban areas and until that mental shift takes place, banking will continue to be a metro phenomenon."

An uptrend in economic activity should not put any stress on availability of funds or their price. At least on this point most bankers are unanimous. None would like to cut the lending rate (Prime Lending Rate) ruling at between 10.50-11 per cent any further and most of them think "it has bottomed out." Some time ago a senior office bearer of IBA had talked of a cut in PLR by 0.50 percentage point, but then that is being taken as a one-off statement. But excess liquidity will keep market interest rates low with some believing a slight drop in the coming months if the repo rate is chipped by RBI.

Trading profits this year may not be able to save the situation. By September banks will have to come with a single PLR with other rates derived from it and RBI is pushing the matter.

Most bankers are busy recovering NPAs and the process could be helped if growth picks up as non-standard assets could turn standard.

That could get countered with the 90-day norm (against the earlier 180-day norm) coming into being in the fourth quarter of the current year (January-March 2003).

Banks see NPAs move up by about 10 per cent and all have already started providing for it. In this mix, it is doubtful if any initiative by the RBI alone can help as all the strategies will have to come from New Delhi and the political Capital is least bothered about the economic agenda. None believes banking Bills will be passed by Parliament in the monsoon session though Ministers have been talking of it.

Talk on Mint Street is that the standing committee of Parliament is quite in favour of the Government shrinking its equity stake in nationalised banks to 33 per cent; but SBI and its associates will get no reprieve and continue to be the arms of the Finance Ministry.

For the moment, the current year could yet be another 365 days of wasted opportunity for the banking system.

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