`RBI rate cut to boost SME, credit off take`

'RBI rate cut to boost SME, credit off take'

Last Updated: Wed, Jan 30, 2013 05:19 hrs
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Cooperative banks in the country have welcomed the Reserve Bank of India (RBI)'s move of cutting the cash reserve ratio (CRR) and repo rates.

The move, according to cooperative banking leaders, would support small and medium industries and increase credit offtake.

In its quarterly credit policy announcement on Tuesday, RBI cut CRR and repo rates by 25 basis points each. Welcoming the move, sources in the cooperative banking circles hinted a turnaround in the sector.

"The cut in CRR will enhance the liquidity of the Scheduled State Cooperative Banks and will also make available funds to the Short Term Cooperative Credit Structure (STCCS) for dispensation of crop loans. Around 50 per cent of the grassroots level credit is made available by NABARD as refinance. The move will help improve share of the STCCS in its declining share in dispensation of agricultural credit," said T K Panda, MD, Odisha State Cooperative Bank.

The move is also believed to help reducing the lending rates so as to compete with other peers in the banking industry. Currently, lending rates for most urban cooperative banks hover in the range of 10-14 per cent for different segments including housing, retail and industry.

"The Scheduled Urban Cooperative Banks will be greatly benefited from a reduction in CRR. Around Rs 600 crores would be pumped into the system for lending and investment in profitable areas," said Panda.

"It is expected that the agriculture term loan and non-agriculture or non-farm sector loans will be available at least 50 basis points lesser rate from the system," he added.

As per the data provided by National Federation of Urban Cooperative Banks and Credit Societies Ltd (Nafcub), there are over 1640 UCBs spread across the country having deposits of over Rs 2,38,000 crore and advances worth over Rs 1,58,000 crore.

"Cut in CRR will not only increase loanable funds but it will also send a positive message for the small and medium industries. Most of the loans by cooperative banks go to SMEs. A cut in CRR will encourage banks to reduce lending rates, thereby making cheaper funds available for the small businesses," said Jyotindra Mehta, chairman, Gujarat Urban Cooperative Banks' Federation (GUCBF).

The cooperative banks will also make a balance by attempting to reduce deposit rates. "But that will be in line with the actions taken by other commercial banks," said Mehta.

The urban cooperative banks expect around 15-20 per cent growth in the advances in the current fiscal 2012-13, while deposits growth is expected to be around 13-15 per cent.

"There has been improvement in the cooperative banking industry. And a supportive move like such will further strengthen financing activity of the banks. It can be noted that gross NPAs stood at around 8 per cent last year, while net NPAs were around 2-3 per cent. However, we expect the gross NPAs will also come down to around 5 per cent this fiscal, almost in line with other commercial banks," said a senior official of Nafcub.

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