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Stock market seems to be quite bullish: says FM

This article was posted on Jun 10, 2009 and is filed under Market News

I hope that the impact of various pro-growth measures would help to turn around the economy soon: FM

Following is the text of speech of Finance Minister Shri Pranab Mukherjee at the meeting of Chief Executives of Public Sector Banks/Financial Institutions.

“I am pleased to meet you all today for the first interactive meeting after this Government assumed office. This platform is used by the Ministry to convey our areas of focus and also the areas where we would like to have your involvement. The landscape, both domestic and global has fortunately changed for the better since we met last in February. Against this positive background, our government is committed to provide an atmosphere that is conducive for the overall growth of the economy in general and well being of the people in particular. Before we take up the agenda in detail, let me take this opportunity to provide a glimpse of the overall economic and financial scenario during the financial year 2008-09 which was indeed stressful for all of us.

The sub-prime crisis, which originated in the United States, reached its peak with the bankruptcy of the Lehman brothers in September, 2008. A series of bank failures in United States was followed by spreading of contagion to various parts of the developed world. Developed nations and certain countries of Asian region were under the grip of recession, which called for concerted and co-ordinated action between the governments and central banks on the one hand and across the governments on the other. Stimulus packages worth trillions of dollars were pumped into the economies across the world to stimulate demand and to propel the economy towards growth. Central banks reduced their key interest rates and took various measures to instill confidence of the people in the financial system.

Domestically, due to the stringent monetary measures followed prior to September, 2008 to control inflation, the lending of the banks was almost choked. We ended up with a situation of tight liquidity in the market, which forced the banks to borrow more than Rs. 90,000 crores per day from RBI. However, after September, 2008 the tight monetary policy gave way for liberal policy measures both by the Government and RBI. Government announced several stimuli in the form of various tax concessions, relaxation in duties and special packages to certain needy and key sectors. RBI pursued liberal monetary policy measures and ensured sufficient liquidity in the system. Between September 2008 and April 2009, RBI reduced the key policy rates and also reduced the CRR and SLR requirements for banks. Special liquidity window was opened for mutual funds and NBFCs with a view to meet their liquidity needs. The unwinding of earlier tightening measures and the relaxation in risk weights and provisioning norms facilitated flow of credit to the sectors under stress. This was supplemented by allowing regulatory forbearance to overcome the temporary cash flow problems of even viable businesses.

As a result of the various measures announced by the Government and RBI, today we are looking at our economy with a lot of hope. The last quarter GDP growth figure of 5.8 per cent and the annual growth of around 6.7 per cent for 2008-09, is a pointer towards this direction. The stock market also seems to be quite bullish. Prime Lending Rates of the banks have come down to the range of 12.00-12.25 per cent as against 13.75-14.25 per cent six months back. I hope that the impact of various pro-growth measures would help to turn around the economy soon.

Let me take this opportunity to compliment all of you for your good performance during the financial year 2008-09. The overall business of the public sector banks grew by about 26 per cent at a time when the credit growth of both the private sector banks and foreign banks was declining and resources from non-bank financial sources were contracting. Net profit of the public sector banks has showed a robust growth of 27.0 per cent in 2008-09. As the main shareholder of the public sector banks, Government has already announced that it wants to recapitalise public sector banks to enable them to achieve CRAR of 12%. The Government will ensure that credit growth of the public sector banks will not suffer for want of capital. The process of consolidation of banks may be necessary to improve the state of competitiveness of Indian banks globally and also to reduce the risk to financial stability. On the issue of merger of Public Sector Banks, Government has always maintained that the initiatives for consolidation in the banking sector have to come from the management of banks themselves and Government would only play a supportive role as a common shareholder.

It is a matter of deep satisfaction that the flow of agricultural credit has increased by over three and half times in the last 5 years. As I mentioned in my last meeting with you all, we would continue to focus on public spending in employment oriented growth sectors, increasing the purchasing power of the people, development of rural sector, both agriculture and non-agriculture, and development of labour intensive MSME sector. I would urge you to intensify the financial inclusion initiatives undertaken by your banks including technological innovations. The branchless banking initiatives and the model of business correspondents and business facilitators need to be pursued vigorously to enable the country to achieve inclusive growth.

India faces many challenges on the economic front. The present Government is committed to the overall development of the economy. For the economy to prosper, the business has to flourish. Our role is to provide an enabling environment for the business to flourish by way of various pro-growth policy announcements. As a financial intermediary, the banks have to standby to provide credit at reasonable rates. This is an area of concern in many quarters both within the Government and outside. It is said that the reduction in key rates by RBI is not getting adequately reflected in the reduction of BPLR of banks. I would urge the banks to address these concerns expeditiously and in adequate measure. This will help restore the environment for rapid growth and ensure that the growth process benefits all our people.

source: Indiainfoline

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