According to the latest RBI data, non-food bank credit growth (year-on-year) stood at just 6.7% in July, the same as in June but sharply lower than a 11.4% rise in July 2019.
Finance minister Nirmala Sitharaman on Wednesday called on public sector banks (PSBs) to get back to their “core business” of lending with renewed vigour and play their part in the economic revival of the country in the aftermath of the Covid-19 pandemic.
The statement comes less than a week after she asked lenders to swiftly identify eligible borrowers and roll out resolution schemes by September 15 under the Reserve Bank of India’s one-time restructuring window.
In a virtual event to launch “doorstep banking services” and declare winners under the Enhanced Access and Service Excellence reform initiave, the finance minister essentially made two broad appeals to the PSBs: “Don’t forget your core business, that is, to lend and earn out of it…. Have a detailed understanding of various govt schemes effected through banks and implement them well.”
“Also, understand what the government wants for the economic revival.”
The economy, which witnessed a record 23.9% slide year-on-year in the June quarter needs a massive credit push to get back on its feet, especially as lockdown-related curbs have been substantially eased now. PSBs will have to shun risk aversion and do the heavy lifting, especially because shadow-lenders’ ability to lend has been impaired by the crisis. Several agencies have forecast the GDP to contract by up to 12% in FY21. Although a revival is expected in FY22, it will be mainly on the back of a favourable base.
While lauding the Jan Dhan initiative, which made the swift transfer of government relief to the poor (a total of Rs 30,952 crore) possible to soften the Covid blows, the finance minister, however, reminded the banks that “we can’t just rest on the laurels” of having opened 40 crore no-frills accounts for the poor. She exhorted the state-run banks to cover the remote hamlets of the country, not through expensive brick-and-mortar branches, but by harnessing the power of technology.
According to the latest RBI data, non-food bank credit growth (year-on-year) stood at just 6.7% in July, the same as in June but sharply lower than a 11.4% rise in July 2019. Loans for agriculture and allied activities rose 5.4% in July, against 6.8% a year before. However, credit to industry grew just 0.8% in July, compared with 6.1% a year earlier.
In her meeting with top executives of banks (both public and private) and non-banking financial companies last week, the minister stressed that borrowers must be given support after the expiry of the loan repayment moratorium. However, Covid-19 related distress “must not impact the lenders’ assessment of borrowers’ creditworthiness”, according to a statement by the finance ministry. Efforts must be made to revive every viable business, she said.
Already, the KV Kamath panel, set up by the central bank to recommend eligibility parameters for the restructuring of loans, has identified 26 sectors for the relief and also suggested sector-specific thresholds for these sectors. It has said power, construction, iron and steel, roads, real estate, wholesale trading, textiles, consumer durables, aviation, logistics, hotels, restaurants and tourism, mining are among the sectors that will require restructuring.
Last month, the RBI extended a special window for lenders to recast stressed retail and corporate loans without classifying them as non-performing, provided that they set aside 10% provisions on such advances.
In its Financial Stability Report, the RBI has forecast that gross non-performing assets (NPAs) may jump from 8.5% at the end of March 2020 to 12.5%, a 20-year peak, by March 2021. However, the NPA level may shoot to 14.7% by March 2021 in case of a severity of economic stress.
Banks have made progress in implementing some of the critical schemes of the schemes, announced in May as part of a Rs 2-lakh-crore relief package. For instance, as of September 3, banks’ loan sanctions under the Rs 3-lakh-crore credit guarantee scheme stood at Rs 1.61 lakh crore, of which more than Rs 1.14 lakh crore had been disbursed, mainly to MSMEs.