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N.S. Vageesh

CHENNAI, July 5

PUBLIC sector banks lent more money to those from their own ilk in 2001-02. Advances of 23 public sector banks to public sector companies rose by 36 per cent in the last fiscal. This was when the overall credit growth was up only 19 per cent.

Although this may convey the impression that public sector companies are the new flavour of the season (keeping step with their performance on the bourses), in reality it may not have been so. The correct picture may emerge only after more disaggregated details are available. But based on what bankers say, it is clear that a major portion of the increase could be attributed to the increase in food credit as well as drawals by oil companies. Building up of the foodgrain stocks to over 62 million tonnes with attendant carrying costs has obviously led to higher disbursements here. Similarly, oil companies have been forced to borrow more from banks, as the Government had not paid up its dues to these companies from the oil pool account.

Mr Cherian Varghese, Chairman and Managing Director of Corporation Bank, which saw an 86 per cent increase in advances to the public sector at Rs 2,938 crore, said that a substantial portion of these advances were to oil companies. He said that the bank found it preferable to lend here (admittedly at very fine rates) because yields on Government securities were dropping during the last fiscal.

Besides, since these were "bulk lending", the transaction costs would also be lower.

Asked if large loans at these rates were sustainable, Mr Varghese said that this was an interim arrangement until better alternatives on the retail side were visible.

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