State-run lenders are staring at massive losses, especially in the first half of FY21, due to the Covid-19 outbreak and a lockdown, which will likely erode their capital position.
Finance minister Nirmala Sitharaman met Prime Minister Narendra Modi on Thursday, as the government gears up for the next round of succour for critical sectors, a senior government official told FE. However, a one-time, big-bang stimulus to blunt the pandemic impact on the economy is not on the cards. Instead, the government will come out with several rounds of relief measures, with focus on the worst-hit sectors, such as MSMEs, exports, construction, aviation and certain other labour-intensive sectors, said the official.
The finance ministry will hold a meeting with top executives of state-run banks on Friday, for a second time this week, to review liquidity in the system and the lenders’ preparedness to support the credit appetite of the economy once the lockdown is lifted for certain segments after April 20, another source said. Public-sector banks’ capital position and an expected spike in bad loans following the lifting of a three-month repayment moratorium will likely feature in the discussion as well.
In the meetings, to be held via video conference, bankers could be asked to ensure the credit flow isn’t choked in any way to eligible borrowers and that they need to support enterprises, especially MSMEs, without diluting prudential norms. Already, several PSBs, including SBI and Punjab National Bank, have hiked the working capital limit for eligible customers to help them tide over a temporary liquidity shortage.
The department of financial services has already held a meeting with top bankers on enhancing credit flow and the implementation of the Rs 1.7 lakh crore relief package for the poor and the vulnerable under the Pradhan Mantri Garib Kalyan Yojana, announced late last month.
Commenting on the next set of relief measures, one of the sources quoted earlier said: “There can’t be a one-shot solution to this unprecedented health and economic crisis. The government will follow a multi-pronged approach, as there are several unknowns. Therefore, its fiscal fire power will be calibrated accordingly and not exhausted in one go.”
State-run lenders are staring at massive losses, especially in the first half of FY21, due to the Covid-19 outbreak and a lockdown, which will likely erode their capital position. So infusion will be critical, especially in the September and December quarters, once the impact of the pandemic hopefully starts to ebb and the economy needs a massive credit push to get back on its feet, bankers say. PSBs will have to do the heavy lifting, especially as shadow-lenders’ ability to lend will remain severely impaired by the crisis, they add.
Having risen at a double-digit pace in FY19, non-food credit growth faltered this fiscal. Even before the Covid-19 started to spread, non-food credit growth crashed to just 6.3% year-on-year in the fortnight through February 14, the lowest since May 2017, mirroring a broader economic slowdown and risk aversion among bankers. The credit growth plunged further to 6.07% for the fortnight ended March 13, as the pandemic impact started to bite.
The Covid-19 crisis and the prospect of a spike in bad loans come just when PSBs were assumed to have made progress in the battle against non-performing assets (NPAs). As many as 13 PSBs clocked profits in H1FY20, against just six a year before. The growth of gross NPA of state-run banks contracted by 7.9% year-on-year in the December quarter, against 7.1% a year earlier.