Reserve Bank of India (RBI) governor Shaktikanta Das on Monday questioned public sector banks (PSBs) on why credit growth is not taking off despite specific actions taken by the central bank. Further, heads of these banks were also asked why growth at PSBs is slower as compared to their private peers.
Data released by the RBI last week showed that outstanding non-food credit from banks slid to 6.3% year-on-year (Y-o-Y) during the fortnight ended February 14. Credit markets in India have had a bad year in FY20, with the non-food credit between April 2019 and mid-February growing at just 2.5% Y-o-Y.
In a closed-door meeting with the bankers, the RBI also discussed a few other issues, such as the resolution of stressed assets and long-term repo operations (LTRO). “The RBI asked why despite the measures taken by the regulator should the credit growth remain muted?” said a source aware of the developments.
PSB growth vis a vis private banks’ growth was also discussed as was the progress of the digitisation programme. “Also under discussion was what institutional facilitators are required to take credit offtake to a desired level and whether NBFC (non-banking financial company) growth is happening or not,” another source said.
Bankers are understood to have explained the reasons behind the difference between growth rates seen by PSBs and private banks. They also sought clarifications on how to distinguish between cases of willful default and diversion of funds. “That has long been an ask of banks – that rules be framed around this and that got repeated today,” one of the two people quoted above said.
Even as the rising consumer inflation has meant that the monetary policy committee (MPC) was unable to cut the repo rate in its February policy review, the RBI on its part took other measures to bring the cost of funds down in the money markets and for consumers. It has already lent banks over Rs 75,000 crore at relatively cheaper rates through the LTRO. At the same time, it allowed banks to exclude from cash reserve ratio (CRR) calculations an amount equivalent to the incremental loans given between February 14 and July 31 in the housing, auto and small-enterprise categories.
Last week, finance minister Nirmala Sitharaman also exhorted PSBs to go back to branch banking and push the credit flow to small and medium enterprises in a purported bid to revive the economic growth.