JOIN USAllow public to hold more stake in PSU banks: Eco Survey
The Survey also suggested passage of the Banking Regulation (Amendment) Bill 2005. Noting that the credit market suffers from structural rigidities, the survey said, it may have been reinforced in the recent years due to a high credit demand encouraging the banks to raise deposits at higher rates for long term liquidity.
“These high rates have now come in the way of cutting lending rates at a pace which is consistent with the current outlook on inflation and the need for stimulating demand,” it said.
Highlighting the performance of the banking sector during 2007-08, the survey said the gross non-performing assets of scheduled commercial banks as proportion of total assets declined to 1.3 per cent against 1.5 per cent in the previous year.
The survey noted that the continued boom in the economic activity led to significant expansion of credit by banks, moderated during 2008-09.
Debt issues
Though the bank credit to commercial sector witnessed strong growth in the first half of the year, it decelerated particularly in the second half of 2008-09. For the full year, the bank credit to the commercial sector expanded by 16.9 per cent only, compared to a growth of 21 per cent in 2007-08. Overall credit growth moderated to 17.3 per cent from level of 22.3 per cent in 2007-08. Talking about the debt issues the Economic Survey pointed out that after witnessing strong growth for two consecutive years, the Indian primary market witnessed a set back in 2008, as fund mobilisation through debt issues remained subdued for the first time in the last four years. There was no debt issue in 2008 against a record fund raising of Rs 594 crore through the issue of debt in 2007.
This is the first time in last four years that corporate India failed to raise a single rupee through debt issue. Besides, all the fund mobilisation mode of primary market like equity, private placement and Euro issues, including American Depository Receipts and Global Depository Receipts, registered significant fall. Total amount of capital (raised) through equity issues during 2008 was at Rs 49,485 crore, recording a decline of 15.7 per cent compared to the level in 2007, the survey noted. The Survey also noted that the fresh issue of government of India dated securities in 2008 amounted to Rs 1,76,000 crore against Rs 1,62,000 crore in 2007. Trading in corporate bonds increased significantly in 2008-09. The increase in terms of volume was from Rs 96,119 crore in 2007-08 to Rs 1,48,747 crore in 2008-09.
Independent debt office
To avoid the possibility of conflict between monetary and debt management functions of the RBI, the Economic Survey prescribed setting up of an independent office to manage the Government debt. In India, the Reserve Bank manages marketable government debt as well, besides handling its core function of monetary management. The Budget for 2007-08 had proposed separation of debt management function from monetary management and the purpose was to provide greater operational autonomy to the monetary policy framework and avoid any possibility of conflict between monetary policy and debt management.
Single regulator
All financial market regulations should be brought under Sebi to encourage integrated development, the economic survey said, while listing the potential policy decisions for the government in the financial market arena.
At the same time, the survey also suggested broadening the long-term debt markets by liberalising the investment norms for insurance and pension funds. The government could consider a guarantee mechanism for credit enhancement of long-term infrastructure debt.
Press Trust of India