The Hindu Business Line : RBI steps not a certainty to banks increasing lending

RBI’s measures announced recently may help reduce capital adequacy requirements for banks and help them lower their provisioning, should they choose to ramp up lending to sectors such as NBFCs, real estate and SMEs, to drive advances growth. However, whether banks enhance lending to these sectors in a worsening macro environment remains to be seen.

RBI’s measures include reducing the risk weights required to be assumed by banks on lending to un-rated corporate borrowers and commercial real estate and reduction of standard asset provisioning, apart from increasing the export credit refinancing limit, extension of the period of pre-shipment export credit. RBI has also increased rates on NRE and FCNR deposits by 75 basis points, which may help shore up the banks’ deposit base to some extent. Banks may be able to work with an effective SLR ratio of 21.5 per cent, if they avail of the special repo facility for mutual funds and NBFCs and the special refinancing facility.

Impact on the banks

Reducing the risk weights on the lending to un-rated corporates and commercial real estate players to 100 per cent from 150 per cent may help banks with a higher proportion of un-rated corporate advances to set aside less capital (and thus improve capital adequacy) for these exposures. Apart from this, provisioning requirements, which used to be as high as 2 per cent on loans to commercial real estate, capital market exposures and NBFCs have been eased to 0.4 per cent (agriculture and SME continue to attract 0.25 per cent). This measure may boost profitability. However, whether this alone will encourage banks to enhance lending to these sectors, amid rising perceptions of credit risk, remains to be seen.

Export Credit and refinancing

Given that the global slowdown may have extended credit periods for exporters, RBI has also moved to extend the period of pre-shipment entitlement (letter of credit) for exporter from 180 days to 270 days. Export credit refinancing, which is increased from 15 per cent of rupee export credit to 50 per cent, will also give banks additional liquidity support of Rs 22,000 crore.

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