OF107TH MEETING OF SLBC (HARYANA) HELD ON 20th APRIL, 2009

The 107th meeting of the State Level Bankers’ Committee, Haryana was held on 20.04.2009 to review the performance of banking system for the period endedDecember,2008 at Hotel Mountview, Sector-10, Chandigarh. Shri Dharam Vir, IAS, Chief Secretary, Govt. of Haryanawas the Chief Guest and Shri Nagesh Pydah, Executive Director,Punjab National Bank presided over the meeting. Shri AM Sharan,IAS,Financial Commissioner & Principal Secretary (Finance), Govt. of Haryana, Shri Mahavir Singh, IAS, Special Secretary cum Project Director, SJSRY, Govt. of Haryana, Shri R. Gandhi, Regional Director, RBI, New Delhi, Shri S. Chaudhry, GM, RBI, New Delhi, Shri HK Talreja, General Manager (OIC), NABARD and other officials from State Govt. and various Banks participated in the meeting. The list of participants is as per Annexure.

WELCOME ADDRESS OF SHRI NC JAIN, GENERAL MANAGER PNB & CONVENER SLBC

At the outset Shri Jain extended a warm & hearty welcome to Shri Dharam Vir, IAS, Chief Secretary, Government of Haryanaon his behalf & on behalf of all the participants present in the meeting. He expressed his sincere gratitude to him for accepting the request to be the Chief Guest of 107thmeeting of SLBC Haryana despite his very busy schedule. He also extended a very warm welcome to Shri Nagesh Pydah, ExecutiveDirector of Punjab National Bank and Chairman of the meeting and all the dignitaries & representatives from banks, Financial Institutions and State Govt. who had assembled to participate in 107th meeting of SLBC, Haryana.

While sharing the brief profile of Shri Nagesh Pydah who had recently joined Punjab National Bank as Executive Director and Chaired SLBC (Haryana) Meeting for the first time, Shri Jain expressed his confidence that SLBC will be benefitted with varied and enriched experience of Shri Pydah.

Thereafter, Shri Jain expressed his sincere gratitude to Shri Nagesh Pydah for chairing the 107th meeting of SLBC Haryana.

Shri Jain informed that the performance of banks up to period ended December 2008 shall be presented by the Chairman of the meeting in his Key NoteAddress, however, he apprised the house about the action taken in respect of the guidelines issued by Ministry of Finance, Govt. of India & Reserve Bank of India regarding various packages aimed at strengthening the MSE Sector.

  • As desired by Ministry of Finance & Reserve Bank of India, special meeting of SLBC on MSE was convened on 12.02.2009. Further, the Special Monthly Meeting of SLBC on MSE was also convened on 12.03.2009.
  • During these meetings, the progress of Banks in respect of IBA package was reviewed.
  • The feed-back report in respect of IBA package was also submitted to Ministry of Finance well in time.

During these meetings, it was observed that performance of banks in implementing various elements of IBA Package was satisfactory & that the performance under the IBA package for the period ended March 2009 would be reviewed during today’s meeting.

It was further informed that the performance of the banks up to December, 2008 was satisfactory particularly in respect of:

C D Ratio

Doubling of Credit flow to Small & Medium Enterprises (SME).

Nayak Committee recommendations.

Credit flow to women beneficiaries and Minority Communities.

Self Help Groups &

National Goals in respect of Priority Sector, Agriculture & Women Beneficiaries etc.

Shri Jain apprised that during 105th SLBC meeting held on 20.10.2008, it was observed that there were high number of non-viable sick units and high incidence of NPAs under Government sponsored schemes. In order to analyze the reasons of the same & to suggest the strategies for reducing the number of such non-viable sick SMEs & improving recovery under Government sponsored schemes it was suggested to formulate Sub Groups of SLBC.

He further shared with the house that both those Sub Groups were constituted as desired and preliminary meetings of both the Sub Groups were organized. During the meetings of the Sub-Groups, the members had suggested certain measures to reduce the high number of Sick Non-viable SME units and high number of NPAs under Govt. Sponsored Schemes.

As both the issues involved were of significant importance for all the stake holders, it was observed that there was a need to have an independent study from outside agency. Accordingly, the Convener Bank had taken up with 3 different outside agencies (University Business School, NITCON & RCED) and he expressed that the jobwould be got accomplished soon for further placing before the house in subsequent meetings.

Shri Jain further requested the banker colleagues to initiate more efforts for:

Initiating implementation of IT Enabled Business Correspondent/Business Facilitator Model;

Establishment of Financial Education & Credit Counseling Centers (FLCCs)

Achievement of National Goal under DRI advances specially in view of the revised norms for eligibility and upward revision of loan amount as also the revised target under DRI i.e. 10 cases per rural branch per quarter.

Before concluding, Shri Jain requested all the members to participate actively during the course of presentation of agenda items.

Shri Jain then requestedShri Nagesh Pydah, Executive Director, PNB and Chairman of the meeting to deliver his Key Note Address.

KEY NOTE ADDRESS BY SHRI NAGESH PYDAH, EXECUTIVE DIRECTOR, PNB & CHAIRMAN OF THE MEETING

At the outset Shri Nagesh Pydahextended awarm welcome to Shri Dharam Vir, IAS, Chief Secretary, Government of Haryana and other senior officials from State Government and various Banks.

Before proceeding further, Shri Pydah shared some important Macro Economic Developments that have taken place recently:

MACRO LEVEL DEVELOPMENTS

Ever since the unearthing of sub-prime crisis, the Global Economic Outlook deteriorated sharply particularly during the last quarter.

As a sign of ferocity of the down turn, the IMF has marked down, yet again, its estimate for global growth in 2009 to a range of (-) 1.0 to (-) 0.5% indicating the first global contraction in 60 years.

All the advanced economies like United States, Europe & Japan have firmly gone into recession. The contagion of the crisis from the financial sector to the real sector is almost total, which suggest that contractionary forces are strong, demand has slumped, production is plunging, job losses are rising and credit markets remain in seizure.

The most important concern is the World Trade which is the main channel through which the down turn gets transmitted and the same has been projected to contract by 2.8 % in 2009, which is the fastest pace of shrinkage in the last 80 years.

Contrary to the decoupling hypothesis, emerging economies too have been hit by the crisis as the capital flow during last few months has revealed sharp widening of spreads on sovereign & corporate debt as well as abrupt currency depreciations.

The impact of the crisis has spread to India through all the channels – the financial channel, the real channel & the most important the confidence channel.

RBI MEASURES

In response to evolving global and domestic developments, RBI has taken number of measures which are aimed to augment domestic and forex liquidity and to enable banks to continue to lend for productive purposes while maintaining credit quality so as to maintain the growth momentum.

Some of the measures initiated by RBI are as follows:

Reduction of Repo Rate by 400 basis points from 9% as on October 19, 2008 to 5 % effective from 05.03.2009, signaling banks to cut lending rates further.

Reduction of Reverse Repo Rate by 150 basis points from 5% as on 08.12.2008 to 3.5% effective from 05.03.2009.

Series of reduction in CRR from 9% as at 30th August2008 to 5.0% with effect from January 17, 2009, thus injecting sufficient liquidity in the system.

Re-introduction of 2% interest subvention w.e.f. 1.12.2008 upto March 31st, 2009 on Pre and Post Shipment credit for textile, handlooms, carpets, handicrafts, leather, gems and jewellery, marine products and small and medium industries subject to minimum rate of interest of 7% per annum.

Enhancement of interest subvention on production credit under agriculture upto Rs 3 lakh from 2% to 3% for 2008-09.

Enhancement in Export Credit Refinance limit for SCBs from 15% to 50% of the outstanding export credit.

Extension in the period of pre-shipment credit and post-shipment credit to 270 days and 180 days respectively. The concessional rate on post-shipment credit would be made available upto 180 days and even in respect of bills which remain overdue for payment beyond 180days, concessional interest rate will be made applicable.

Shri Pydah expressed that all these measures would help in enhancing the liquidity in the economy, stepping up demand and arresting the moderation in growth.

FISCAL STIMULUS BY THE GOVERNMENT

Keeping in view the depth & extra-ordinary impact of the crisis, the Central Government has launched two fiscal stimulus packages in December 2008 & January 2009.

4% cut in Cenvat on all products (other than petroleum and those products for which the current rate is less than 4%).

Additional plan expenditure upto Rs. 20,000/- crore for infrastructure, industry and exports.

The lock in period for loans covered under Credit Guarantee Scheme for Micro and Small Enterprises has been reduced from 24 to 18 months.

Additional allocation of Rs. 1400/- crore to clear entire back log in TUF Schemes.

All these measures initiated by Govt. of India and RBI would help in creating an “Effective Demand” in the economy and thus providing impetus to the growth.

IBA Package for Housing and SME Sector

In order to boost real estate sector and SME, IBA announced a Special Package on December 16, 2008 to be implemented by all Public Sector Banks, which include:

Special Schemes for Housing

Housing Loan up to Rs. 5.00 lac will carry an interest rate of 8.5% p.a. and the margin for such loans would be 10%.

While Housing Loans between Rs.5.00 lac to Rs.20.00 lac will carry interest of 9.25% p.a., the borrower would require to contribute 15% as margin.

There would not be any processing fee and pre-payment charges for loans up to Rs. 20 lac. The borrowers would also be given free insurance cover as a part of the package.

The package is operative till June 2009.

New package is for fresh loans only.

No change in interest rates upwards for the next five years, but can be reduced.

Measures for MSME Sector

Public Sector Banks will grant need based adhoc Working Capital Demand Loans upto 20% of the existing fund based limits in respect of units having overall fund based credit facility upto Rs.20 crore. The loan will be repayable in one year with a provision of moratorium of six months during which only interest will have to be serviced.

In the current stretched shipment and receivables situation resulting in elongated operating cycle of business impacting working capital requirement needs, banks will be pro-active and forthcoming in sanctioning adequate increase in working capital limits.

Relief will be granted by reducing margin on receivables. Further, receivables upto six months will be reckoned for book debt financing.

Cash margins on letters of credit/guarantee will also be relaxed based on needs.

Moratorium period will be extended in respect of loans availed by MSMEs where project implementation has been delayed in the current scenario.

For units unable to repay term loan obligation on time, repayment will be rescheduled/rephased on a case-to-case basis within the overall loan policy of the respective banks.

Finance for purchase of gensets will be made available on soft terms.

Banks will take up a second restructuring of SME accounts on a case-to-case basis.

Interest rates on borrowings by Micro Industries will stand reduced by 100 basis points for all existing and new loans with immediate effect. In respect of Small and Medium Enterprises where banks have fund based exposures upto Rs.10 crore, interest rates will stand reduced by 50 basis points with immediate effect. The reduction in these rates of interest will be with reference to the rates of interest prevailing on 30.11.2008.

Each Public Sector Bank will also set up Regional MSME Care Centres to facilitate MSM Entrepreneurs for quick redressal of their grievances. The function of these centers will be monitored directly by Head Office and the list of such centers will be posted on IBA portal and on website of each Public Sector Bank.

Nevertheless the global crisis will dent India’s growth trajectory as investments & exports have slowed down. However, once the global economy begins to recover, India’s turn around will be sharper & swifter, backed by our strong fundamentals and unexploited growth potential.

Shri Pydah expressed his satisfaction that Haryana’s economy is growing by 11.2% which is higher than that of the nation. In fact, higher economic growth is the mantra for poverty alleviation. He was happy to share with all that the State Government was following the same which induced enthusiasm amongst bankers and others like NABARD and different Government agencies partnering in economic development.

Shri Pydah also apprised the members about action taken on the major action points of the last SLBC meetings.

ACTION TAKEN REPORT ON THE MAJOR ACTION POINTS OF LAST SLBC HELD ON 31.12.2008

Financial Inclusion

Shri Pydah apprised that during 105th meeting of SLBC Haryana, the House had declared the compliance of 100% Financial Inclusion in Haryana Rural. However, it was expressed that only first phase of 100% financial inclusion has been accomplished and it was emphasized that Total Financial Inclusion should be achieved by implementing BC/BF Model by way of which banking services can be provided at the doorsteps of the un-served section of the society. It was also decided that to attain 100% Credit Inclusion, each household of the State may be provided with at least 1 Credit Card i.e. either KCC or GCC.

He expressed his satisfaction that the banks in Haryana have initiated steps for implementing the BC/BF model in few districts which, however, needed to be undertaken in all the districts of the State for attaining Total Financial Inclusion. Steps were also being initiated by the Banks and LDMs to implement the decision of providing at least 1 Credit Card to each household.

Speaking about Incentive Scheme for Quicker Adoption of Electronic Benefit Transfer (EBT) for Government Schemes, he informed the members that Reserve Bank of India has formulated the EBT Scheme for government payments in respect of social security and other such schemes. The package would depend upon the State Government agreeing to pay transaction fee of 2% to the participating bank. The Convener Bank has already requested the State Government to examine the Scheme.

Evaluation Study – 100 % Financial Inclusion

Shri Pydah also apprised about the findings of an evaluation study got conducted by RBI through independent external agencies in 26 Districts of the country. The findings revealed that the actual financial inclusion has not been to that extent and the accounts opened during FI drive have remained inoperative. Although no District of Haryana has been covered in the study but he shared the salient findings of the study which reveals that most of the accounts opened as a part of the financial inclusion drive, have remained inoperative due to various reasons such as distance from branch, illiteracy, lack of interest, non availability of Passbooks etc.

He suggested that efficient leverage of technology enabled Financial Inclusion such as smart cards with bio-metric access can address these issues.

Establishment of Financial Literacy & Credit Counseling Centre (FLCC) :

He expressed that concept of Financial Literacy needed to be given due importance by member banks so as to help rural people in improving their understanding of financial products and to undertake risks in an informed manner. The Banks in Haryana have already opened 6Financial Literacy and Credit Counseling Centres at Yamuna Nagar & Rohtak by PNB, Mewat by Syndicate Bank, Rewari by Gurgaon Gramin Bank,Karnal by OBC and Sonepat by SBOP.

Shri Pydah suggested that the performance of these centers should be reviewed regularly in SLBC meetings so as to assess their efficacy and share the success of such centers with member banks, so that that the concept may be extended to other districts jointly or individually.

He further informed that RBI vide its letter dated 04.02.2009 had also come out with model guidelines for setting up such centers which need to be taken into account while opening any such centre.

SPECIAL PACKAGE OF IBA FOR MSE, HOUSING & AUTO SECTORS

Shri Pydah was happy to say that SLBC-Haryana had risen to the occasion and organized a Special Meeting on MSE as desired by the Ministry of Finance and also organizing the special monthly meetings on MSE regularly. The progress made by the banks under the special package of IBA was reviewed in such meetings.

It was further apprised that a Credit Monitoring Cell (CMC) had been set up in the Office of the Development Commissioners (MSME), Ministry of MSME Govt. of India to monitor progress on this front.