Critical sectors: PM asks lenders to boost credit flow

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February 27, 2021 5:00 AM

The Prime Minister said the public sector needs to further entrench their presence in banking and insurance to support the poor, even though the government is stepping up efforts to promote the private sector as well.

The economy is recovering from the Covid-induced shocks and is expected to reverse a slide next fiscal to grow in the range of 10% to 13.7%. A massive credit push is thus required for businesses to resume operations without hiccups.The economy is recovering from the Covid-induced shocks and is expected to reverse a slide next fiscal to grow in the range of 10% to 13.7%. A massive credit push is thus required for businesses to resume operations without hiccups.

Prime Minister Narendra Modi on Friday asked lenders to boost credit flow to critical as well as new sectors to satiate the growing appetite of a fast-recuperating economy, with an assurance that public-sector bankers won’t be harassed for honest business mistakes. He also promised further reforms in the financial services space.

Modi said the government recognises the cycle of ups and downs faced by businesses. So, it doesn’t harbour the thinking that all transactional decisions by bankers are done with mala-fide intent and amount to malfeasance.

“The government’s responsibility is to stand with all such business decisions taken with good intent and I want to say this to all those in the financial sector that I will stand by you for all decisions taken with honest intent,” Modi added.

The economy is recovering from the Covid-induced shocks and is expected to reverse a slide next fiscal to grow in the range of 10% to 13.7%. A massive credit push is thus required for businesses to resume operations without hiccups.

Modi was speaking at a webinar, attended by finance minister Nirmala Sitharaman, principal secretary to the Prime Minister PK Mishra, minister of state for finance Anurag Thakur, financial services secretary Debasish Panda and other stakeholders.

The statement comes at a time when non-food credit growth has slowed even as businesses are going through a reset phase following a substantial easing of lockdown curbs. Growth in non-food dropped 5.92% year-on-year in the fortnight through January 29 from 6.35% in the previous fortnight.

The financial sector, the Prime Minister said, was hurt 10-12 years ago due to “aggressive lending”. Steps have been taken to take the country out of this non-transparent credit culture. “Today instead of brushing NPAs under the carpet, we have made it mandatory to report default on day one,” he said.

The RBI data released last month showed credit to industry shrank by 1.2% in December 2020, against a 1.6% rise a year before, mainly due to a contraction in loans to large industries by 2.4%. This is way below the 5.9% non-food bank credit growth recorded in December, even though this growth rate, too, was lower than the December 2019 level of 7%.

However, credit to medium industries registered a robust growth of 15.3% in December, mainly due to the government’s guarantee on loans to them under a `3-lakh-crore scheme announced after the pandemic. Modi said as many as 90 lakh micro, small and medium enterprises were given credit worth `2.4 lakh crore in the aftermath of the pandemic.

As for reforms, Modi highlighted the Budget commitment to privatise two state-run banks and raise foreign direct investment (FDI) in insurance to 74% from 49%. The proposed development finance institution will help bolster infrastructure creation.

The Prime Minister said the public sector needs to further entrench their presence in banking and insurance to support the poor, even though the government is stepping up efforts to promote the private sector as well.

“As our economy is growing, and growing fast, credit flow has also become equally important. You have to see how credit reaches new sectors, new entrepreneurs. Now you will have to focus on creation of new and better financial products for start-ups and Fintech,” Modi said.

Stressing that millions of small farmers came out of the clutch of informal lending channels due to the introduction of the Kisan credit cards, the Prime Minister asked lenders to focus on similar innovative financial products to help the poor and the vulnerable.

As many as 130 crore people have Aadhaar cards now and 41 crore have Jan Dhan accounts, of which 55% are women.

Highlighting the need to further bolster financial inclusion through the use of technology, he said on an average Rs 4 lakh crore worth transactions are being undertaken through UPI platform every month and there are 60 crore RuPay card holders.

Loans worth as much as `15 lakh crore have been extended through the MUDRA scheme. Around Rs 1.15 lakh crore have been deposited in 11 crore farmer families through the PM Kisan scheme, he said.

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