FM to banks: cut credit for commercial property

At a meeting with chief executives of PSU banks, finance minister P Chidambaram also asked these banks to make available credit at “correct prices” to productive sectors. He also cautioned PSU banks against raising bulk deposits at high cost in the months of February and March.

“We have advised banks that credit growth of about 30 per cent has to be moderated, therefore they have to rebalance their portfolio and moderate credit growth to what RBI calls high-risk sectors like commercial real estate, capital markets and systemically important NBFCs,” Chidambaram said.

FM said he was informed by chairmen of the banks that they have started rebalancing of portfolios in the second half of 2006-07 and will proceed the debt in the first half of this fiscal. “We have impressed upon them that they have to rebalance their portfolio so that adequate credit at correct prices is available to productive sectors,” he said.

The finance minister said that banks have been cautioned against raising bulk deposits at high cost in the months of February and March, terming this kind of a trend as a vicious circle. “If banks raise bulk deposits at high cost in February and March this year, they will do it again in February and March next year,” the FM said. The Indian Banks Association will now evolve guidelines so as banks do not compete with each other on raising bulk deposits at high cost.