RBI cautions on retail lending

Finance minister Arun Jaitley has decided to make a last-minute entry at a meeting with bank chiefs on Thursday where the agenda prominently figures credit flow to various sectors, new project proposals and the progress on stalled projects, apart from the financial inclusion initiative Stock Market Trading Tips

The meeting comes amid a note of caution by the Reserve Bank of India (RBI) against too much retail lending by banks. "In the absence of corporate demand, many of the banks have been crowding in the retail space, trying to capitalize on demand for housing, two-wheelers and four-wheelers, white goods and so on. This, however, raises concerns on credit absorption level in the sector. Though the segment has until now experienced moderate levels of impairment, going forward, the banks would need to put in place systems and processes to ensure adequate origination & monitoring standards and stand guard against formation of asset bubbles," RBI deputy governor S S Mundra said at an Axis Capital conference last Thursday, although his speech was made public on Wednesday Financial Astrology Trading Tips

RBI's statement comes at a time when the government and bankers are worried over the pace of credit flow, especially for investment in additional capacity creation by the industry. In fact, Jaitley has gone public with suggestions that RBI may explore the possibility of a rate cut, especially when inflation has moderated. The central bank has, however, restrained itself from a reduction in policy rates as it expects inflation to accelerate in the coming weeks. 

Economists believe that a rate cut may not be the solution to boost investment in the economy as there is sufficient liquidity in the system in the absence of credit offtake. In addition, companies are sitting on excess capacity as demand for white goods, cars, cement and steel has been lower than anticipated Personal Numerology Trading Tips

At Thursday's meeting, Jaitley is bound to compliment bankers for meeting the target of opening 7.5 crore accounts under the Pradhan Mantri Jan-Dhan Yojana well ahead of the January 2015 deadline. Data on the official website showed that banks had opened 7.58 crore accounts till Monday., which had deposits of close to Rs 6,000 crore, although there was no balance in 5.7 crore accounts. 

Mundra, who had flagged the issue of credit quality, also said in his speech that banks could tap greater India, where banking penetration has hitherto been inadequate. "Meeting the funding needs for the life-cycle demand of this segment would be a sustainable business avenue for banks in the coming years," he said Intraday Trading Tips