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"We need more liquidity to meet the increasing credit demand. Liquidity is not tight. But in the months of February and March we foresee that there would be further increase in credit demand. To meet this expanded credit demand, we need more resources," the CMD of Punjab National Bank, Mr S.C. Gupta, said.

New Delhi , Feb. 6

ANTICIPATING a sharp increase in credit demand, bankers on Monday told the Finance Minister, Mr P. Chidambaram, that the liquidity situation might tighten in February and March.

In a pre-budget meeting held here on Monday, leading public and private sector banks sought measures in the forthcoming Union Budget that would bolster liquidity in the banking system.

Bankers expressed keenness to maintain a softer interest rate regime that could be upset in the event of tight liquidity scenario. They also made a strong case for tax breaks that would make term deposits a more attractive route for the public to park their money.

Altogether eight public sector banks, including SBI, PNB and Bank of Baroda and three private sector banks — ICICI Bank, UTI Bank and HDFC Bank — had their top representatives at the meeting.

"We raised the issue of tax incentive for attracting deposits into the banking system such as the breaks available under Section 80C (that allows tax deduction on investment up to Rs 1 lakh made in select instruments)," Mr A.K. Purwar, Chairman, SBI, said after the meeting.

The Chairman and Managing Director of PNB, Mr S.C. Gupta, said that there were imminent signs of tightening liquidity given the rising demand for credit. "We need more liquidity to meet the increasing credit demand. Liquidity is not tight. But in the months of February and March we foresee that there would be further increase in credit demand. To meet this expanded credit demand, we need more resources," he said.

Stimulating industrial climate: Mr Gupta said that the bankers and the Finance Minister discussed measures to stimulate the industrial climate. "We discussed budget-related issues, including measures to make the industrial climate better," he said. These included steps needed to step up financing of the infrastructure sector, he added.

Asked whether the issue of Banking Cash Transaction Tax (BCTT) figured in the discussions, bankers replied in the negative.

The meeting also discussed steps to further boost lending to the agriculture sector and small and medium enterprises (SME).

Lending rates: When asked on the possibility of lending rates going up, Mr Purwar that SBI was reviewing its home loan rates. However, Mr Gupta indicated that PNB might not go in for an immediate upward revision of lending rates.

"Only three banks have increased lending rates. PNB has not increased its lending rates for the last nine months for retail, including housing, though deposit rates have been hiked. We are in favour of a softer interest rate regime," Mr Gupta said.

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