``The committee members are unable to agree with RBI's contention that investments by PSU banks in government securities is due to low offtake of credit besides securities having a zero risk weight,'' the panel report says. The reply furnished by RBI implies that only during low-credit take off period banks invest their funds in zero risk gilts.

``However, the committee is unable to agree with this contention of RBI in the light of the fact that public sector commercial banks have undertaken investment in government securities in excess of the stipulated percentage during the last five years,'' it observed. Commercial banks' investment in gilts were in excess by 5.8 per cent, 6.9 per cent, 6.6 per cent, 7.4 per cent and 8.2 per cent respectively during last five financial years ending 1997-98, saysthe report of the standing committee on finance headed by Murli Deora. The report was submitted to Parliament recently.

``It is surprising to note that about 13 public sector commercial banks have invested more than their increase in deposits during 1996-97 and 1997-98 in government securities'', it said. There is no dearth of availability of quality borrowers seeking bank funds for financing their manufacturing or commercial ventures.

``Though the committee appreciate problems of low offtake of credit by commerce and industry and also reluctance on the part of banks to lend due to bitter experience of the securities scam, it feels the banks should make more concerted efforts to identify potential customers for lending''.

The public sector commercial banks have instead, been preferring the soft option of investing in the SLR securities in excess of the prescribed norms, says the report.

``The committee, therefore, recommends that the RBI and the government should persuade the banks to shed their riskaversion and start identifying potential customers to lend in the current year.''

``This can be done by providing suitable insulating mechanism at the lower levels in order to encourage honest decision making and to minimise ''fear psychosis prevailing at present'', says the report.

The committee felt that in the light of sanctions imposed by United States and some countries, the spreads on the Indian security papers has gone up. Many Indian corporates wanting to raise capital from international markets would be forced to abandon their plans resulting in demand for more funds from the banking system.