The finance ministry on Monday advised public sector banks (PSBs) to continue to support economic growth by extending adequate credit to the industry even as it asked the PSBs to accelerate bad loan recovery, sources said.
The meeting with chiefs of public-sector banks (PSBs) remained inconclusive as finance minister Nirmala Sitharaman could not attend the meeting, which was chaired by the minister of state for finance Bhagwat Karad in her absence. Another meeting will take place soon in the presence of Sitharaman.
The meeting, convened by the department of financial services, came at a time when the government wants banks to satiate the growing credit appetite of a fast-recuperating economy that is also facing considerable external headwinds in the wake of the Russia-Ukraine conflict.
Having remained subdued over most of the last two years, credit growth has improved in recent months.
Non-food bank credit grew 11.3% on year in April, compared with 9.7% in the previous month and 4.7% a year before. However, loans to industry grew at a slower pace of 8.1% even on a marginally-contracted base.
With PSBs turning profitable last fiscal and adequately capitalised, they are in a position to further improve lending, sources said.
The nudge assumes importance as the Reserve Bank of India (RBI) may be forced to go for a third round of aggressive rate increase in August to contain elevated inflation. On May 4, the Monetary Policy Committee of RBI resorted to an out-of-cycle repo rate hike by 40 basis points, the sharpest increase in nearly 11 years, to 4.4% and followed it up with another 50-basis point increase in June.
The ministry reviewed large non-performing assets of over Rs 100 crore each and their overall asset quality. The lenders were asked to focus on recovery and resolution of NPA accounts through NCLT and other platforms, sources said.
The RBI had, in December 2021, warned that bad loans of commercial banks could rise to anywhere between 8.1% and 9.5% under varying degrees of stress by September 2022 from 6.9% in September 2021. Of course, the central bank had highlighted that banks were generally well-placed to weather credit-related shocks.
The PSB chiefs also briefed the ministry that their capitalisation level is adequate at the moment and would raise funds from the market when required.