| Topic : Managing liquidity crisis |
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Posted in Community :
Credit Risk Management
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Activity:
18 views;
last activity : 07 06 2010 20:18:09 +0000
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Enabling softer lending rates
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Lenders lack confidence
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Lots of questions
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Cash-rich public sector enterprises have been advised not to seek
competitive bids from banks for bulk deposits (more than Rs 1 crore)
but to be content with card rates; usually competitive rates can rise
two percentage points higher. The Finance Minister has asked the PSUs to park at least 60
per cent of their surplus funds with public sector banks. This is not
the first time that New Delhi has issued such instructions. They issued them again not simply because they were ignored but because
the times require a reduction in the cost of bank funds to enable
softer lending rates
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No supporting Arguments for this idea
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I think ,the problem North Block must confront is the lack of confidence among
lenders about sectors that were once considered profitable to lend to.
Risk aversion is spreading to borrowers who are delaying decisions
because of uncertainties in the economy and the heightened risks of
investing. The high cost of money has not helped. Yet, the most optimal
way to get the interest rates down is through the mechanisms that RBI
has at its disposal just as the most effective catalyst for sparking
off credit growth is the revival of spending; directed deposits, like
directed lending in earlier times, will do neither.
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No supporting Arguments for this idea
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But just how efficient is North Block’s method of ensuring cheaper
funds for credit when it enriches public sector banks at the cost of
the PSUs that will stand to lose Rs 3,000 to 4,000 crore from this
diktat? Then again, assuming that bulk deposit rates drop, what is the
guarantee that the banks will lend this money? With all the liquidity
injected into the banking system — Rs 2 lakh crore through RBI cuts —
banks have shown a preference for government paper with as much as Rs
71,226 crore parked in G-Secs in the fortnight ending October 24
compared to Rs. 19,879 crore in the fortnight ending September 12.
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No supporting Arguments for this idea
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JOBEESTAN
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