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NEW DELHI, Feb. 27

THE Securitisation Act is not all about recovery of dues by the banks. While corporate India is lobbying hard to dilute some of the recovery powers given to banks and financial institutions under the Act, the Economic Survey feels that the legislation could actually turn out to be beneficial to borrowers by helping in pushing down lending rates.

"With enactment of the Securitisation, Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, an enabling environment has been created for banks to reduce interest rates," the Survey has said.

It has pointed out that as banks recover their sticky loans by enforcing the Act, banks would be able to lend money at lower costs since the `default premium' on account of their non-performing assets (NPA) baggage would be lowered. Thus, lenders would now have to factor in a lower cost of NPAs while arriving at their lending rate structure.

The softening of interest rates as a result of the Act could also lead to a revival of corporate activity, the Survey feels. "One noticeable development in the current year is the sub-PLR lending by commercial banks on a large scale.

The sub-PLR lending of the banking system now constitutes over one third of their total lending. Introduction of sub-PLR lending and possible reduction of spreads over PLR following the enactment of the Securitisation Act may result in a revival of investment demand," it has said.

At the same time, the Survey has hinted that there is enough scope for easing of lending rates. It has been pointed out that interest rate trends during the immediate past shows that reduction of lending rates has not kept pace with the reduction in deposit rates. Thus, while the prime lending rate (PLR) trend of leading banks shows that the rates have dropped from between 11-12 per cent range on March 30, 2001, to 10.75-11.50 per cent in January 10, 2003, deposit rates have fallen by a much steeper rate during the period from between 8.5-10 per cent to 5.5-6.5 per cent.

Pointing out a few areas of concern for the Government as far as the banking sector is concerned, it has been pointed out that public sector banks (PSB) as a whole have not been meeting their sub-target for priority sector lending for agriculture.

"Another cause of concern is the reduction in the share of advances to small scale industry sector in the case of both PSBs and private sector banks," the Survey has mentioned.

Moreover, concern has also been voiced over the shortfall in disbursement of funds under the Rural Infrastructure Development Fund (RIDF) as compared to sanctions.

Brakes on gilts investment

GIVEN the high investment by banks in Government securities which have run far in excess of their mandatory requirement of statutory liquid ratio (SLR) investment of 25 per cent of net demand and time liabilities, the Survey has sent a message that the Union Government and the Reserve Bank of India would not like to seen any further hike in such investments.

"Commercial banks cannot continue to increase their investment in low-yielding Government securities," it has said. Thus would means that banks would be encouraged to direct more of their lendable resources for promoting investments.

The investment in Government securities for SLR purposes has reached 37.8 per cent as against the 25 per cent requirement.

During the current fiscal (up to January 10, 2003), investments by banks in Government and other approved securities went up by an incremental amount of Rs 83,738 crore as compared to Rs 63,082 crore in the corresponding period in the previous year.

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