The finance ministry has advised state-run banks to start a nationwide loan outreach programme soon and take advantage of a potential rise in credit demand in the build-up to Diwali and thereafter, as the economy is on a path of “sustained recovery”, sources told FE.
The banks have been asked to set targets of loans to be sanctioned during the district-wise outreach programme and join hands with fintech firms and non-banking financial companies to step up disbursement to even small borrowers.
The move follows finance minister Nirmala Sitharaman’s instruction in August to state-run lenders to initiate the outreach programme, as the government sought to stir economic growth through sustained credit push, amid fears that bankers were increasingly turning risk-averse. Lenders had 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, the minister had said.
Having remained muted for months together, non-food loan flow witnessed an uptick of late. Growth in non-food bank credit improved to 6.7% in August from 5.5% a year earlier. Loans to industry grew 2.3% from 0.4% but still remained low. That’s despite the fact that daily surplus liquidity in the banking system averaged as much as Rs 6 lakh crore in July and August, according to CARE Ratings.
The finance ministry has also asked ministries of agriculture, labour, housing, health and rural development to help bolster the number of beneficiaries for insurance as well as pension outreach as well.
The finance ministry believes that various sectors of the economy – including exports 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 is also expected to provide a leg-up to the one-district-one-product export theme mooted by the Prime Minister.
The weekly average (net) liquidity surplus in the banking system, prevalent since June 2019, has jumped from Rs 4.5 lakh crore as of end-June 2021 to over Rs 7.5 lakh crore by October 5, according to CARE Ratings. “The increase in surplus can primarily be put down to the sustained lower credit disbursement from banks due to weak demand for credit as well as wariness of banks to lend,” it said in a report last week.
Similarly, public-sector banks (PSBs) were 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.
State-run banks have turned the corner, with profits of Rs 31,820 crore in FY21, the highest in five years. The net bad loans of state-run banks dropped to 3.1% in FY21 from as much as 7.97% three years earlier, and their capital adequacy (CRAR) was about 14%, against the requirement of 10.875%. The improved financials have improved their ability to lend adequately, the finance ministry believes.
Already, to boost credit flow to Covid-hit businesses and professionals, the government last year introduced the Emergency Credit Line Guarantee Scheme (ECLGS). As of September 24, loans sanctioned under various avatars of the scheme (ECLGS 1.0, 2.0 and 3.0) stood at Rs 2.86 lakh crore.
Similarly, its Rs 7,500-crore credit guarantee scheme, announced on June 28, to facilitate concessional loans to an estimated 25 lakh small borrowers through micro-finance institutions was fully utilised within 75 days.