Post-package meet: Credit flow, NBFCs top FM, bankers’ agenda

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Published: May 22, 2020 12:10:19 AM

Days after announcing a Rs 21-lakh-crore package with a sharp focus on improving liquidity flow into critical sectors of the economy, finance minister Nirmala Sitharaman will hold her first crucial meeting with top executives of state-run banks on Friday.

The meeting, to be held via video conference, will dwell upon credit disbursement since March, especially Covid-19-related sanction as well as offtake, amid perceptions of growing risk aversion in the banking sector. The meeting, to be held via video conference, will dwell upon credit disbursement since March, especially Covid-19-related sanction as well as offtake, amid perceptions of growing risk aversion in the banking sector.

Days after announcing a Rs 21-lakh-crore package with a sharp focus on improving liquidity flow into critical sectors of the economy, finance minister Nirmala Sitharaman will hold her first crucial meeting with top executives of state-run banks on Friday, sources told FE.

The meeting, to be held via video conference, will dwell upon credit disbursement since March, especially Covid-19-related sanction as well as offtake, amid perceptions of growing risk aversion in the banking sector. The meeting comes at a time when banks are supposed to play a catalytic role in implementing several announcements made by the government – including official guarantee on collateral-free loans of Rs 3 lakh crore for MSMEs and Rs 75,000-crore liquidity facility for shadow lenders – to fight the pandemic. The minister may take stock of bankers’ preparedness in adopting the schemes that have been announced.

Loan flow to agriculture just ahead of the Kharif sowing season, small businesses and non-banking financial companies (NBFCs) will be reviewed, along with the lenders’ transmission of the benefit of rate cuts by the central bank to customers.

The deployment of excessive funds by banks with the RBI under the reverse repo route and the repayment moratorium will likely be reviewed, said the sources. The progress under the targeted long-term repo operations – under which banks accepted only Rs 12,850 crore of Rs 25,000 crore provided by the central bank under the first tranche of TLTRO 2.0 – is set to be reviewed.

The RBI had on April 17 announced that it would conduct the TLTRO of Rs 50,000 core in tranches, aimed at bolstering liquidity support to NBFCs and micro-finance institutions that have been battered by the Covid-19 outbreak. The muted response to the TLTRO highlighted banks’ risk-aversion and reinforced fears of liquidity flow to relatively small players in the shadow-banking space.

Commenting on the credit flow, Sitharaman last week said while banks had been sanctioning loans, many borrowers wanted the disbursement to take place only after the lockdown was lifted. This was one of the reasons why banks chose to park funds under the reverse repo route, she added.

As the Covid-19 outbreak has plunged the country into an unprecedented crisis, the economy requires a massive credit push to get back on its feet. Public-sector banks (PSBs) will have to do the heavy lifting, especially as shadow-lenders’ ability to boost credit has been severely impaired by the pandemic and private banks remain guarded about their fresh exposure.

Having risen at a double-digit pace in FY19, non-food credit growth faltered last 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 stood at 6.67% in the fortnight ended April 24.

As for easing credit flow, 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. However, lower-rated borrowers have been facing a greater liquidity crunch due to risk-averse banks and mutual funds (MFs), especially after last month’s closure of six debt funds of Franklin Templeton, the country’s ninth-largest MF. Various rating agencies have flagged financial-sector risks as a major drag on the economy.

State-run lenders are staring at massive losses, especially in the first half of FY21, due to the Covid-19 outbreak and the lockdown, which will likely erode their capital position. So infusion will be critical, especially in the September and December quarters, according to bankers.

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