Committee headed by G Padmanabhan, ED, RBI, has recommended that export credit be allowed to be a part of priority sector lending (PSL) for all commercial as well as foreign banks for a period of three to five years
A technical committee set up by the Reserve Bank of India (RBI) has made some key suggestions to help exporters access finance from banks on easier terms.
The committee headed by G Padmanabhan, ED of RBI, has recommended that export credit be allowed to be a part of priority sector lending (PSL) for all commercial as well as foreign banks for a period of three to five years.
SL Bansal, Chairman & Managing Director (CMD) of Oriental Bank of Commerce (OBC) is of the view that if the suggestion is accepted by the RBI, then not only will it help exporters, but it will be good fro the country as well. "I think exporters will straightaway be a benefited by 2 percent, he told CNBC-TV18.
He further said that once export credit gets merged with the priority sector two things will happen. One, it will be easier for banks to reach to the priority sector numbers. Two, since banks will benefit, they would like to pass on the benefit to exporters.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: If export credit is included in priority sector lending, what will be the differential in rates between what exporters are currently charged and what they would be charged under the priority sector lending?
A: I think the exporters will be straight away benefited by close to 2 percent because as on date we are charging something like base rate plus 2 percent. Since the priority sector definition was revisited last time and most of the banks are struggling to get the priority sector numbers, they will be tempted to give equivalent to the base rate.
There is a regulatory prescription, you cannot go down below the base rate but if some subvention is allowed then to that extent we can go down. So, straight away exporters will be benefited by close to 1.5-2 percent.
Q: They have not spoken of subvention but they have said that to provide the required thrust to exports, the panel recommends export credit being included under priority sector for all commercial banks for a period of three-five years, so it is seen as temporary. As well there is a suggestion that a sub target of 8 percent of aggregate bank credit be set aside for exports even then it would be 2 percent or if it is 8 percent of your total aggregate net bank credit then will they gain even more?
A: As on date, most of the banks are struggling to get this 12 percent stipulated target of export credit and most of the banks are hovering around 5.5-6 percent. For our bank, we are around 5 percent. Once it gets merged with the priority sector then we will be motivated to offer the base rates and then two things will happen. One, it will be easier for us to reach to the priority sector numbers. Two, instead of going for other financing which we usually do to get the priority sector number, so to that extent we will be benefited and we would like to pass on the benefit to exporters.
Q: So you expect that the general quality of your asset quality could also improve a bit because sometimes you are forced to give under priority sector for sectors you do not want to. So, if that burden is reduced and you are giving it to exports, which are a sector that does not do too badly, do you expect a marginal improvement even in your overall asset quality?
A: I do not think so but one good thing will happen; when we will be scouting for good export proposal, there will be competitiveness. We will be offering at a lower rate of interest. The good exporters will get rate closer to base rate and we will be giving thrust to the exports, so that export competitiveness will improve in the international market. That will be good for the country.
All these norms of 40 percent and sub target of 18 percent for agriculture, we have laid down way back in 1969 and 1974 when agriculture was contributing close to 55 percent or 60 percent to the GDP, whereas now agriculture is contributing only 15 percent. Going forward achieving 18 percent is very tough.
So it is a welcome suggestion by the technical committee. If it is accepted, it will be good for the country.
Q: Do you see it being accepted by the RBI or do you expect any modifications perhaps in this sub target of 8 percent or the three-five year period?
A: Bankers will be willing to accept it and they will wholeheartedly welcome it. It is for the RBI to take a call.
Q: On the issue of the sting operation were you shocked by the extent which so many banks and bankers are talking about violating the law, did that come as a shock to you?
A: We are reacting too quickly to all these things. We have investigated our case and to my mind our employees have done nothing wrong. Oon the face of it our employees have guided the customer properly whatever the rules are laid down as per the policy of the RBI, as per government of India, as per the banks. I have not found anything wrong in that discussion but so much pressure is created by the media and other agencies that sometimes you have to unwillingly take some actions.
There are two things to be understood; one there is no incentive mechanism in the banks where the employees will be tempted to violate these guidelines. Two, all along banks have been maintaining, especially public sector banks that we are following these Know Your Customer (KYC) guidelines. Now when you enter into a discussion sometimes junior level officers are tempted to make some loose comments on anything. And then you pickup something from somewhere and you add something somewhere.
Q: So there is no question of any dismissal or suspension or inquiry in your bank?
A: We are inquiring everything, this is my first comment but let us not jump to the conclusion.
Oriental Bank stock price
On September 23, 2014, Oriental Bank of Commerce closed at Rs 262.85, down Rs 17.35, or 6.19 percent. The 52-week high of the share was Rs 377.30 and the 52-week low was Rs 144.20.
The company's trailing 12-month (TTM) EPS was at Rs 38.37 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 6.85. The latest book value of the company is Rs 447.91 per share. At current value, the price-to-book value of the company is 0.59.
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