Credit demand in the economy has grown rapidly since the last few quarters. Economists expect that credit demand in the coming years will grow at more than the present rate of growth, i.e. 30% p.a. The big question is from where the banks will bring money to finance the coming huge capital intensive projects in the field of infrastructure and other industries. The only way the RBI could help is by reducing its statutory requirements in the form of SLR (Statutory Liquidity Ratio) and CRR (Cash Reserve Ratio). The relief by the RBI with the reduction in the requirement of these two ratios will not suffice.
The
banks cannot fund the projects with all the borrowed
money from public and other sources. They have to bring
their own money also to swell the loans portfolio as
per the regulatory requirement. Also the banks required
more capital under the new regime, i.e., Basel II, which
is going to be implemented in India in 2007. Under Basel
II norms, the banks have to maintain certain percentage
of capital in relation to the risk of borrower.
In
bringing the capital, Indian banks especially the public
sector banks have very few avenues because in many of
them the government is holding 51% of their stocks.
After this level, they cannot dilute government holding.
The only way left to bring in the capital is to raise
the money through Tire II capital, though the options
to raise money are also very few under this mode. But
the recent circular of the RBI, i.e. on January 25,
2006, has brought a releif for banks. This circular
says that the banks can raise money through innovative
long-term instruments to meet the raising demand for
credit in the economy and for implementing the Basel
II norms. |
