Select sectors may get more seasonal discount on interest
The government may consider a further interest subsidy on loans to companies in select sectors as part of moves to engineer their revival by getting bank credit flowing into them, a government official said.
By Amiti Sen, ET Bureau |
NEW DELHI: The government may consider a further interest subsidy on loans to companies in select sectors as part of moves to engineer their revival by getting bank credit flowing into them, a government official said. The committee of secretaries (CoS) led by Cabinet secretary KM Chandrashekhar will hold a series of meetings with public sector bank chiefs next week to identify sectors where banks are reluctant to provide credit because of high risk of default.
The sectors which could gain most from the proposed government intervention include gems & jewellery, automobile components and some categories of textiles, which are most exposed to the downturn in global trade, industry officials say. The Indian economy has been feeling the heat of the global trade and financial slowdown since the second half of the fiscal year. India���s exports fell 13% in February 2009 while the index of industrial production (IIP) contracted 2% in December 2008.
The Centre will seek Election Commission���s permission to provide the additional incentives, as the model code of conduct in place doesn���t allow the government to make a major policy announcement. The government has already provided a 2% interest subsidy to sectors such as textiles, handicrafts, leather, marine products and gems & jewellery in its two booster packages announced earlier this fiscal year. It also extended the repayments period for loans to exporters to 180 days from 90 days.
The sectors which could gain most from the proposed government intervention include gems & jewellery, automobile components and some categories of textiles, which are most exposed to the downturn in global trade, industry officials say. The Indian economy has been feeling the heat of the global trade and financial slowdown since the second half of the fiscal year. India���s exports fell 13% in February 2009 while the index of industrial production (IIP) contracted 2% in December 2008.
The Centre will seek Election Commission���s permission to provide the additional incentives, as the model code of conduct in place doesn���t allow the government to make a major policy announcement. The government has already provided a 2% interest subsidy to sectors such as textiles, handicrafts, leather, marine products and gems & jewellery in its two booster packages announced earlier this fiscal year. It also extended the repayments period for loans to exporters to 180 days from 90 days.
The secretaries panel, comprising top officials from various government ministries, will look at the portfolio of individual banks to examine which sectors they lend to and where their bad loans lie, the commerce ministry official said.
���We will carry out a detailed examination of each bank���s portfolio to deduce the sectors not getting much credit from banks. We will then see how the government can help,��� said the official, who requested anonymity. An RBI representative will be present at the meetings which will take up the cases of two-three banks on any single day.
Small and medium-sized companies, especially those focused on exports, have been complaining about the banking system���s reluctance to lend them money. Many companies have found it difficult to book orders from buyers because banks refused to extend new loans till the old loans were repaid. With foreign buyers asking for longer credit periods, many exporters have not been able to repay old loans on time.
���Sectors such as gems & jewellery, automobile components and some textile categories are facing the maximum problem in convincing banks to lend to them,��� exporters lobby group FIEO director-general Ajay Sahai said. The government and the central bank have already held a number of meetings with banks asking them not to sit on funds, but to extend loans to credible parties with a good track records before being hit by the demand slump.
���It���s a tricky situation. If industry is not given fresh credit, there are chances of the older loans turning into NPAs,��� the official said, adding that banks must take into account the past performance of borrowers in their lending decisions.
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