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Survey concerned about banks becoming risk averse

BS Banking Bureau

The Economic Survey has expressed serious concerns over the rise in banks' investment in government securities and food credit, both guaranteed by the government, while non-food credit languishes. If this trend continues, there is a possibility of banks becoming risk averse, thereby, impairing their ability to meet the credit and investment demands of the private sector, it says.

The Survey has warned that the excessive investment in government papers may "crowd out the flow of credit to the private sector" when the demand for non-food credit picks up with economic revival.

The bank credit as a whole, including the food credit, went up by 10.6 per cent till January 11 in the current fiscal year against the 14.3 per cent in the corresponding period of the previous year. The share of food credit is 24.3 per cent in the total pie, much higher than 20.4 per cent last year. In absolute terms, the food credit increased by Rs 132.04 billion as against Rs 127.26 billion in the corresponding period of the last fiscal.

Banks investment in non-SLR papers (corporate papers) declined to 4.2 per cent till January 11, 2002 (13.6 per cent, in the same period of the last fiscal). Growth in total flow of bank funds to the commercial sector, consisting of non-food credit and non-SLR investments, was lower at 8.1 per cent (12.3 per cent).

During the current financial year till January 11, the growth in investment in government papers was to the tune of Rs 705.55 billion (Rs 499.09 billion).

In percentage terms, the growth in government securities portfolio was 19.7 per cent (17 per cent). This, according to the Survey, is a matter of concern as burdened with the excessive exposure to the government, banks may not be able to take fresh exposures to corporates as and when the economy revives.

The government has already exceeded its budgeted net borrowing programme by Rs 66.49 billion as on January 18, 2002. As against a budgeted net borrowing of Rs 773.53 billion, the government has raised Rs 840.02 billion, till January 18.

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