Finance Minister Nirmala Sitharaman said on Wednesday that state-run banks will launch a nationwide loan outreach programme in October, as the government seeks to boost economic growth through a sustained credit push, particularly to Covid-affected small and medium businesses, retail, and farm sectors, amid fears that bankers have become risk-averse.
Sitharaman told the media after meeting with the heads of public-sector banks (PSBs) in Mumbai that the lenders disbursed loans of Rs. 4.94 lakh crore through a similar outreach campaign in various regions between October 2019 and March 2021.
Financial services secretary Debasish Panda said the Indian Banks' Association (IBA) filed an application with the Reserve Bank of India (RBI) earlier this week requesting a licence to establish up the National Asset Reconstruction Company (NARCL).
According to him, a proposal to offer a sovereign guarantee on security receipts issued by NARCL while purchasing bad loans from lenders is being considered. According to an earlier IBA assessment, such a guarantee would cost the government Rs 30,600 crore over five years.
NARCL was established in Mumbai last month, and once it receives its licence, stressed assets worth Rs. 83,000 crore could be transferred to it in the first phase.
Various sectors of the economy, including exports, fintech, and the sunrise industries, require credit support, according to Sitharaman, and banks must meet this demand. To support their credit requirements, state-run banks have been ordered to have negotiations with exporters and various organisations. This will also help the Prime Minister's one-district-one-product export idea gain traction.
Credit flow has remained sluggish in recent months, continuing to be one of the policymakers' biggest headaches. Non-food bank credit grew at a slower rate of 5.9% in June, down from 6% a year earlier. In fact, after a 2.2 percent increase a year ago, loans to industry shrank by 0.3 percent in June. This is despite the fact that, according to CARE Ratings, daily surplus liquidity in the banking system averaged as much as Rs 6 lakh crore in July and August.
Similarly, the minister has asked PSBs to develop unique plans for each of the north-eastern states in order to increase loan flow. Some eastern provinces, including Odisha, Bihar, Jharkhand, and even West Bengal, account for a significant portion of PSBs' CASA deposits, but credit expansion for business development is still limited. The minister stated that this must be handled.
“With the passage of time, industries now have the option of raising funds from sources other than the banking sector. Banks are raising revenue through a variety of methods. These new factors must be investigated in order to target credit where it is most needed, according to Sitharaman.
State-owned banks have turned the corner, according to Panda, with earnings of Rs 31,820 crore in FY21, the highest in five years. With their solid financials, they were able to raise Rs.58,697 crore from the markets in FY21, including Rs. 10,543 crore in equity capital. Their intentions to raise another Rs 12,000 crore this fiscal year have also garnered traction. Panda added that state-run banks' net bad loans fell to 3.1 percent in FY21, down from 7.97 percent three years earlier. Similarly, their capital adequacy ratio (CRAR) was around 14%, compared to the required 10.875 percent.
Panda said loan proposals worth Rs. 10,000 crore have already been received as part of the Rs. 7,500 crore credit guarantee scheme to provide concessional loans to as much as 25 lakh small borrowers through microfinance institutions (MFIs). The loans will be released in the next 30-45 days. Similarly, under a scheme established last year, credit worth Rs. 2,600 crore has been disbursed to street vendors.
Direct listing of domestic enterprises overseas is being discussed, according to Revenue Secretary Tarun Bajaj, and may necessitate revisions to certain Acts.
The government also increased the family pension for bank personnel to 30% of the last-drawn income, providing relief to banker families. Previously, the heirs of a deceased PSB employee may get up to Rs. 9,284 per month as a family pension. This cap has now been eliminated, resulting in family benefits rising to as much as Rs. 30,000-35,000 per month, according to Panda. Similarly, the finance ministry has decided to increase the employer's contribution to the New Pension Scheme (NPS) from 10% to 14% of the wage.
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