In a bid to boost lending, Finance Minister Nirmala Sitharaman Thursday. 19 September asked public sector banks to organise “loan melas” in 400 districts to lend to desirable shadow banks and retail borrowers, while also adding that no stressed loan account of MSMEs will be declared an NPA till March 2020.
Grappling with six-year low GDP growth and a 45-year high unemployment rate, the government is looking to boost credit that will bring liquidity for businesses and create jobs.
Sitharaman, who since her maiden Budget on 5 July, has announced measures in three tranches for boosting the economy, held a meeting with heads of public sector banks (PSBs) on Thursday to review liquidity or money flow in the system and transmission of lower benchmark interest rates to borrowers.
She said, “Ahead of the festive season, banks will hold ‘loan melas’ in 400 districts in two tranches beginning 3 October to approve loans to any retail or NBFC borrower.”
She said that the PSBs will focus on giving loans to the ‘RAM’ category – retail, agriculture and MSMEs.
‘No Stressed MSME Loan Will Be Declared an NPA Till 31 March 2020’
To help the job-creating small and micro enterprises, she said that banks have been asked to follow the hitherto little used RBI circular of 7 June which directed banks not to consider any stressed MSME loan account as NPA and instead look at recasting the debt.
“But till now, banks did not invoke it for whatever reason. Now, I’m saying, in invoking that, the banks can or may use this provision to make sure that SMA1 and SMA 2 of MSMEs are not declared NPA till 31 March 2020,” she said.
Loans are classified as special mention accounts (SMAs) after showing signs of stress.
She also said that several MSMEs want one-time settlement of their outstanding dues, which should be settled expeditiously by the banks.
“Clearly, I have told the banks that from 1 July till 30 September, they should give me a complete picture of how many have sought and for how many they have settled one-time settlements,” she added.
Banks Must Show Their Liquidity to NBFCs, Customers
The meeting comes a day before the all-powerful GST Council is to meet in Goa to consider demands of industries, ranging from biscuits to car makers, for a cut in tax rates to overcome slowing demand.
Announcing the ‘loan melas’ ahead of ‘Diwali’, the minister said “there shall be gatherings which banks will have of NBFCs with whom they have tied up and given liquidity and retail customers of the banks” to encourage customers, including retail, agriculture, MSME, and homebuyers to take loans.
The loan melas may be held in ‘shamiyanas’ (tents), she said and added the banks will have to show they are pushing liquidity to NBFCs and customers.
“For every existing customer, banks will have to bring in five new customers,” the minister said.
During the meeting with the bank heads, the finance minister reviewed the lenders’ performance and held discussions on overall credit growth with focus on disbursements to key sectors to support the needs of the economy.
On bank unions’ threat of strike on 26 and 27 September, the minister said that the government would address concerns raised by the employee unions on the proposal to consolidate 10 public sector banks into four.
The finance ministry also stated that at the end of August 2019, overall credit growth in the banking sector stood at 10.1 percent on year-on-year basis.
This is in parallel with record recoveries and cleaning of bank balance-sheets showing better quality of asset book.