The Hindu Business Line : Banks turn to Nabard, SIDBI, NHB for funds

The refinance from Nabard or NHB is available at an average 6.5 per cent. The SIDBI refinance will cost a little more but there is neither stamp duty on it nor any CRR/SLR obligation.

Kolkata , Jan. 20

BELEAGUERED BY the liquidity crunch caused by an excessive rise in credit demand and a not-so-satisfactory deposit growth, several public sector banks have queued up before the National Bank for Agriculture and Rural Development (Nabard), Small Industries Development Bank of India (SIDBI) and National Housing Bank (NHB) for securing funds under various refinance schemes.

The banks are also exploring various other alternatives to overcome the present liquidity crisis. The rates of interest on deposits have been jacked up, selectively though; also, there is a move to make retail loans costlier. Many banks are going slow over sanctioning new loans, particularly to big corporates. Some are not only delaying decisions on new loans to big customers, in some cases they are even reluctant to entertain demands for such loans, according to industry sources.

The deposit growth at around 14 per cent so far in the current fiscal has fallen far short of the demand for credit growing at more than 36 per cent. It is not that deposits are not available, but they are available only at a cost. For example, the certificate of deposit (CD) for one year will now attract an interest rate of 7.2 per cent which, together with the cost of stamp duty, and CRR/SLR obligation, will put the total cost at a higher level. Not long ago, the same CD was available at 6.4 per cent or so. The call money rate is also on the rise.

The refinance from Nabard or NHB, on the other hand, is available at an average 6.5 per cent. The SIDBI refinance will cost a little more but there is neither stamp duty on it, nor any CRR/SLR obligation.

Banking sources, however, hope that the present liquidity crisis will soon be over. This will happen because of two reasons. First, the refinance funds will become available with the banks. More important, the Union Government will start withdrawing funds it is holding with the Reserve Bank of India to pay for schemes under various stages of implementation. Normally, the last quarter of any fiscal is when the economic activity picks up. A sizeable chunk of the Government spending will flow into the banking sector, it is felt. The size of the fund is estimated at Rs 60,000 crore.

The banks are also hoping that the government will shortly take a decision on their demand for Tier-III capital as per the Basel II norms. If allowed, the banks will be able to raise loans, though for a shorter period than that under Tier II.

The minimum period for which Tier-II capital is raised is five years, whereas under Tier III it could be two-three years. The Tier-II capital covers both market and credit risks, whereas Tier III covers only market risks. "If the government wants banks to comply with Basel II norms, it should also arm banks with instruments available under the same norms," say banking industry sources.