The Finance Ministry, it appears, wants to take the pulse of the economy through public sector banks. It has called for granular information from these banks on their exposure to commercial real estate (CRE), textiles and sugar sectors.
This move comes in the backdrop of fears that the global economic crisis could impact emerging market economies, including India, through channels such as trade, commodity and capital flows.
Last month the Ministry had sought information on large project loan sanctions, of Rs 100 crore and above, which did not translate into disbursements for a long time for want of statutory clearances relating to environment, land acquisition/ rehabilitation/ resettlement, and coal/ore linkages.
Normally, the Ministry seeks portfolio-wise information, but this time around it has sought specific account-wise information pertaining to sanctioned fund and non-fund-based limits, outstanding loans, and asset classification in the case of borrowers in the CRE, textiles and sugar sectors, said a senior public sector bank official. “Given that we are beginning to feel the ripple effects of the global economic downturn, the Ministry may be wanting to assess the ground realities in different segments of our economy so that the Government can come up with policy measures to minimise systemic shocks,” said the banker.
Credit growth
Notwithstanding the possibility of an asset price build-up, the year-on-year (July 30, 2010 to July 29, 2011) growth in bank credit to the CRE sector was higher at 17.7 per cent, against 2.4 per cent in the July 31, 2009 to July 30, 2010 period, as per the latest RBI data. Asset quality in the CRE sector could come under pressure due to rising interest rates and increasing stock of unsold inventory even as prices remain elevated. Non-performing assets in the CRE segment grew at 70.3 per cent as at end March 2011, with most of the impairment taking place in PSBs, according to the RBI's financial stability report.
The year-on-year growth in bank credit to the sugar sector was higher at 35.7 per cent (18.5 per cent). Bankers say projections of bumper sugarcane crop in the current crop season could impact sugar prices, leading to possible lower realisation for domestic sugar manufacturers.
The y-o-y growth in bank credit to the textiles sector was a tad higher at 18.1 per cent (16.4 per cent).
With cotton prices per candy yo-yoing between a high of Rs 60,000 and a low of Rs 30,000, spinning mills have been affected. However, these mills are not able to pass on the higher input costs to downstream customers, say bankers.
Moreover, banks are facing serious concerns on the asset quality front in the textiles sector due to closure of garment units in Tirupur. This follows the Madras High Court order in January 2011, directing the polluting dyeing and bleaching units in the town to close down.
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