Boosting credit: PSBs to hold another outreach in October, says Finance minister Nirmala Sitharaman

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August 26, 2021 4:30 AM

Addressing media after her meeting with chiefs of public-sector banks (PSBs) in Mumbai, Sitharaman said the lenders disbursed loans of as much as Rs 4.94 lakh crore through a similar outreach programme in various districts between October 2019 and March 2021.

NARCL was incorporated last month in Mumbai and once it gets the licence, stressed assets worth about Rs 83,000 crore could be transferred to it in the first phase.

State-run banks will undertake a nation-wide loan outreach programme around October, finance minister Nirmala Sitharaman said on Wednesday, as the government seeks to stir economic growth through sustained credit push, especially to Covid-hit small and medium businesses, retail and farm sectors, amid fears that bankers have turned risk-averse.

Addressing media after her meeting with chiefs of public-sector banks (PSBs) in Mumbai, Sitharaman said the lenders disbursed loans of as much as Rs 4.94 lakh crore through a similar outreach programme in various districts between October 2019 and March 2021.

Commenting on the operationalisation of a so-called bad bank, financial services secretary Debasish Panda said the Indian Banks’ Association (IBA), earlier this week, filed an application with the Reserve Bank of India (RBI) seeking a licence to set up the National Asset Reconstruction Company (NARCL).

A proposal for offering sovereign guarantee on security receipts issued by NARCL while acquiring bad loans from lenders is under consideration, he said. Such a guarantee would cost the exchequer about Rs 30,600 crore over five years, according to an earlier IBA estimate.

NARCL was incorporated last month in Mumbai and once it gets the licence, stressed assets worth about Rs 83,000 crore could be transferred to it in the first phase.
Sitharaman said various sectors of the economy–including exports, fintech and the sunrise ones–need credit support and banks need to satiate this appetite. State-run banks have been asked to hold talks with exporters and various associations to support their loan requirements. This will also provide a leg-up to the one-district-one-product export theme mooted by the Prime Minister.

Credit flow in recent months remained muted, remaining one of the biggest problems for policy-makers. Growth in non-food bank credit slowed to 5.9% in June from 6% a year earlier. Loans to industry, in fact, contracted by 0.3% in June from a 2.2% increase a year before. That’s despite the fact that daily surplus liquidity in the banking system has averaged as much as Rs 6 lakh crore in July and August, according to CARE Ratings.

Similarly, PSBs have been directed by the minister to firm up specific plans for each of the north-eastern states to boost credit flow there. Some of the eastern states, such as Odisha, Bihar, Jharkhand and even West Bengal, account for a sizeable chunk of PSBs’ CASA deposits but credit expansion for businesses development there remains muted. This needs to be addressed, the minister said.

“With changed times, now industries have option of raising funds even from outside the banking sector. Banks themselves are raising funds through various avenues. These new aspects need to be studied to target credit where it is needed,” Sitharaman said.

Panda said state-run banks have turned the corner, with profits of Rs 31,820 crore in FY21, the highest in five years. Their strong financials enabled them to raise Rs 58,697 crore from the markets in FY21, including an equity capital of Rs 10,543 crore. Their plans to raise an additional Rs 12,000 crore so far this fiscal have gained traction as well. The net bad loans of state-run banks dropped to 3.1% in FY21 from as much as 7.97% three years earlier, Panda said. Similarly, their capital adequacy (CRAR) was about 14%, against the requirement of 10.875%.

Commenting on the progress of the Rs 7,500-crore credit guarantee scheme to facilitate concessional loans to as many as 25 lakh small borrowers through micro-finance institutions (MFIs), Panda said loan proposals worth Rs 10,000 crore have already been received. In the next 30-45 days, the loans will be disbursed. Similarly, credit of Rs 2,600 crore has been disbursed to street vendors under a scheme announced last year.

Revenue secretary Tarun Bajaj said the direct listing of domestic firms overseas is under discussion; this could require changes to certain Acts.

In a relief to families of bankers, the government also raised the family pension for bank employees to 30% of the last-drawn salary. Earlier, kin of a deceased PSB employee used to get a maximum of Rs 9,284 per month as a family pension. Now, this cap is removed, which will result in the family pensions rising to as high as Rs 30,000-35,000 a month, Panda said. Similarly, the finance ministry has also decided to increase the employer’s contribution to the New Pension Scheme (NPS) to 14% of the salary from the current 10%.

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