FM lines up series of meetings; banks asked to step up lending to NBFCs, MSMEs, auto sector
Finance minister Nirmala Sitharaman huddled with top public-sector and private bankers on Monday, the first of a series of meetings lined up with important stakeholders up to August 11, as the government sought to devise plans for critical sectors amid fears that the economy might be slipping into a protracted slowdown.
As per the plan, the minister and top finance ministry bureaucrats will meet representatives of MSMEs on Tuesday, auto sector on Wednesday, industry associations on Thursday, stock market and investor community on Friday, and real estate and homebuyers on Sunday.
The idea is to firm up swift corrective action plans for critical sectors to reverse the slowdown.
The economic expansion already collapsed to a five-year low of 6.8% in FY19. It is forecast to only marginally improve in the current fiscal to 7%, provided private investors return and consumption expenditure rebounds.
Monday’s meeting focused on credit flow to various sectors, particularly to non-banking financial companies (NBFCs), automobiles and MSME, growth in which are faltering. While some of the NBFCs are facing solvency issues, sales of top five auto companies, including Maruti Suzuki, which account for 85% of industry sales, reported a 31% decline from a year before, inflating inventories. The stress in the NBFC sector, which accounted for a sizeable chunk of credit for automobiles purchases in recent years, following the IL&FS crisis has only aggravated the scenario.
On top of this, transmission of rate cuts to borrowers and industry, which also featured prominently in the discussion, remained dismal, despite the RBI having trimmed the repo rate by 75 basis points in 2019. Real interest rates (real base rate of SBI) have remained elevated, in the range of 5-7%, since September last year, the latest Economic Survey showed. In the meeting, banks have now committed to step up credit support for vehicle purchases.
Although overall credit growth continues to be around 12%, marginally lower than the growth of 13.3% at the end of March, the growth in loans to MSMEs has remained only a fraction of it and export credit growth has contracted. However, with the turnaround in the NPA cycle, high provision cover of over 75% and record recovery, bank balance-sheets are healthier than before and they are, therefore, in a position to step up lending, according to a finance ministry statement after the meeting.
Commenting on the Budget announcement of raising the minimum public shareholding in companies to 35% from 25%, Sitharaman told reporters that Sebi was “initiating consultations before a position is taken”. It was mentioned in the Budget speech “not as a part of decision, but something on which we were keen to get a view”, she said. Reports have suggested that if implemented, the rule could result in companies having to offer approximately `1 lakh crore in shares currently owned by controlling shareholders to the public.
On the surcharge on the super-rich that has spooked foreign portfolio investors (FPIs), the minister said: “I am quite open to hearing out what they (FPIs) have to say.”
She said the series of meetings that have been lined up also include the ones with FPIs. Separately, new economic affairs secretary Atanu Chakraborty will also meet them. One of the proposals under consideration to give a one-time capital gains tax waiver for FPIs structured as trusts, to encourage their conversion to corporate structure the tax treatment of which hasn’t changed.
On the contentious Budget proposal for offshore sovereign bonds, the minister said details are yet to be worked out. “It is at the stage of announcement only. I am not speculating on the tranches, size, etc, as nothing has been decided yet,” she said.
As for the capital requirements of PSBs, finance secretary Rajiv Kumar said the ministry will decide after evaluating their June quarter results. Capital infusion into various banks will follow. The government has budgeted `70,000 crore for infusion into PSBs this fiscal, over and above `1,06,000 crore in FY19.
RBI deputy governor NS Vishwanathan, who participated in the meeting, said liquidity in the system remained adequate. As per the ministry statement, bank credit to NBFCs and housing finance companies (HFCs) has now risen by nearly `90,000 crore since September 2018. “In addition, pool buy-outs of over `40,000 crore by public-sector banks (PSBs) have helped the NBFC and HFC sectors reduce their asset-liability mismatch,” according to the statement.
The finance secretary said the norms will be finalised soon to enable PSBs implement the Budget announcement under which the government will offer a one-time six-month partial guarantee of `1 lakh crore to PSBs for purchasing consolidated high-rated pooled assets of financially-sound NBFCs. This will cover their first loss of up to 10%.
In the meeting, banks have also agreed to extend the in-principle approval limit for “contactless digital lending” up to `5 crore to MSMEs on the portal (PSB59minutes.com portal) meant to boost credit flow to such enterprises.
The finance minister reviewed the performance of state-run banks. The meeting was also attended by the senior executives of HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank and Citi Bank.