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Chidambaram to meet bank chiefs on Nov 4

By BS Reporter in Mumbai
October 31, 2008 10:45 IST
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Union Finance Minister P Chidambaram will meet the heads of public sectors banks and financial institutions, like IFCI and Small Industries Development Bank of India (Sidbi) on Tuesday to review their performance for the second quarter ended September 2008.

Bankers said they also expect the government, which is the majority shareholder in 27 public sector banks, to discuss ways to manage the impact of the global slowdown and the financial turmoil on the Indian financial sector and the economy.

A formal agenda for the meeting is yet to be circulated, they added.

"We have been told that the finance minister would like to discuss the performance. But given the adverse effect that the present global financial crisis will have on the Indian economy, he may discuss ways to tackle the issues like credit flow and liquidity," said the head of a mid-sized public sector bank.

Most of the banks, which have declared results for the second quarter, have shown satisfactory performance. There are, however, a few like Allahabad Bank and Vijaya Bank that have shown large provisions and consequently a drop in profits for the July-September quarter.

Going forward, banks may have to brace up for tough days due to adverse effects of the slowdown and rising incidence of defaults in all segments – retail, SMEs and large companies.

"This will be the first formal meeting with bank chiefs after the global financial crisis revealed its once-in-a-century character that is crippling all economies," the head of another large public sector bank said.

"While the government and the Reserve Bank of India (RBI) have taken steps to address problems of liquidity, we still have to make more coordinated efforts to face prospects of the slowdown," added his colleague.

Sources indicated that Chidambaram may discuss the role that banks will play in the present time in supporting the real economy. There are issues like rolling over the credit and papers floated by non-banking finance companies (NBFCs) as also assistance to some mutual funds and also to real estate companies, which are now lobbying for help. The flow of credit to the productive sector and credit quality in a tight environment are some of the issues that could come up for discussions.

While credit growth remains high at over 29 per cent for the year up to October 10, there are indications of the flow slowing to segments like SMEs and retail. The government and RBI have already asked banks, which have been reluctant in recent weeks to lend, to step up credit flow.

Chidambaram met financial sector experts, officials and former RBI governors to discuss the present situation.

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