As a risk-averse banking system and weak demand conditions crippled growth in non-food credit, finance minister Arun Jaitley on Thursday asked public sector banks (PSBs) to ensure smooth credit flow to projects.
“We have suggested to the banks that proactive steps (be taken) in supporting various projects so that credit offtake in these projects takes up in a big way. Credit is the lifeline of an economy,” he said after a quarterly review meeting of PSBs and other financial institutions. Jaitley added that he was optimistic about credit growth picking up soon as many projects are queuing up for credit.
The minister told the PSBs they should carry out lending on the basis of objective due diligence without being unduly conservative, in a completely transparent manner, “without fear or favour”. This would boost the economy and enable an asset book of high quality, he said, adding that any external influence would be considered as a disqualification.
FE had reported that growth in the offtake of non-food credit continued to be weak, with loans to companies and individuals growing at 11.04% year-on-year to R60,09,720 crore for the fortnight ended August 22. This is the slowest growth in credit in over four years. Non-food credit had shown a growth of 11.77% in the fortnight ended December 18, 2009.
A DBS Bank India study showed that for the first time since FY10, deposit growth this year outpaced non-food loan growth. Credit growth between April and October was an average 12.5% y-o-y even as deposits during the same period grew at 13.1%. The Credit-to-deposit ratio of banks fell to 75.8% by end-October from 77% last year, DBS India said.
During the meeting, PSBs were advised to put in greater effort and outreach to ensure smooth access to credit to various sectors to facilitate rapid growth in economic activity, which was a key priority of the government. Key sectors like agriculture, housing, education and solar and renewable energy required particular focus in this regard, an official statement said.
It added that PSBs were urged to achieve the ambitious credit flow growth target for the micro, small and medium enterprises in particular, given the implication for job creation and growth in manufacturing output. Jaitley also said the non-performing assets (NPAs) of banks have risen over the last two to three years due to the economic slowdown, and asked the bankers to take necessary corrective measures in order to bring down bad loans.
Research firm ICRA said in a note that gross NPAs of PSBs are estimated at 4.4-4.7% as on March 31, 2015, against 4.4% as on March 31, 2014, and 4.6% at the end of June, 2014. The minister also reviewed the implementation of the Pradhan Mantri Jan Dhan Yojana on Thursday. While over 7 crore new bank accounts have already been opened under the scheme, the plan is to take the number to 10 crore by January 26.