Ahead of acting finance minister Pranab Mukherjee's meeting with public sector bank chiefs on Monday, the government has asked state-owned lenders to submit data on home loans sanctioned by them since December 15.
In a possible precursor to further rate cuts, Finance Minister Pranab Mukherjee's meeting with public sector bank chiefs on Monday will review their benchmark prime lending rates and interest rates on loans for automobiles, homes, small and medium enterprises and non-banking finance companies.
The government has extended the repayment date six months under the farm loan waiver scheme, a move that is expected to help banks set aside less money for non-performing loans, but has raised expectations of another loan waiver ahead of general elections.
The study conducted at select bank branches in the Cuddalore district of Tamil Nadu has found that the lack of financial literacy was the main reason behind the non-operative accounts. Other aspects like distance from branches also had their share in influencing the degree of usage.
The move is aimed at helping them reduce the interest rate on loans for purchase of commercial vehicles and free up additional capital to meet the higher capital adequacy ratio requirement. Non-banking finance companies have to maintain a capital adequacy ratio of 12 per cent, which is to go up to 15 per cent from April, 2010.
Banks led by State Bank of India are set to lower deposit rates by over 50 basis points by the middle of the month, followed by a reduction in lending rates.
Banks and financial institutions are seeking more flexibility in dealing with commercial and industrial loan accounts, which are seeing pressure due to cash flows and repayment.
Cash-strapped real estate firms are resorting to short-term borrowings of funds to complete ongoing projects as the economic slowdown has virtually halted demand for properties, freezing cash flows.
Gone are the days when banks would treat payment delays as part of life. Instead, they are taking measures to minimise chances of any kind of payment default by doing rigorous background checks.
With public sector banks reducing interest rates on home loans up to Rs 20 lakh (Rs 2 million), housing finance companies (HFCs) might be under pressure to follow suit in order to stay competitive.
Asks lenders to make sure that end use of advances to commercial real estate.
The slowdown coincides with rising loan defaults by retail customers and small enterprises, which have been hit by a steep rise in lending rates. The resource scarcity has changed the priority of investors. They want to remain liquid and not commit their funds to the long term.
Say cost of funds too high to lower lending rates.
At a time when the global banking industry is feeling the pinch of the global credit crunch, Central Bank of India is planning to expand its foreign presence.
Even though the Reserve Bank of India (RBI) has reduced the risk weightage on loans to commercial developers and cut general provisioning for commercial real estate, commercial banks may not start lending to the sector immediately.
At this time of fear and apprehension over jobs, public sector banks are swimming against the tide to go on a hiring spree.
Kerala-based private sector lender Dhanalakshmi Bank plans to recruit close to 400 employees, almost one-third of its present strength, to build up the existing team to tap more business
They say liquidity remains a major cause of concern, and the coming quarters could witness a significant rise in non-performing assets. According to them, a robust risk management system, adequate capital infusion and regulatory reforms is crucial if India's economic growth is to remain intact in the medium and long term. Banks are facing immense liquidity pressure, as resources gradually disappear from the system. Banks have also been unwilling to lend each other.
Most banks are going slow on clearing such loan applications as the employment scenario has turned adverse due to the financial crisis faced by most companies.
Since November 3, the day the central bank's special window was opened, bids worth Rs 2,775 crore (Rs 27.75 billion) were placed at the auctions against the total outstanding amount of Rs 60,000 crore (Rs 600 billion) at the fixed rate of 7.5 per cent. "It's a commercial decision of banks to lend money to NBFCs. It implies that banks are still cautious about lending to NBFCs and they might take some more time to start lending normally to us," said an NBFC chief.
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