Finance Minister Nirmala Sitharaman will meet with Heads of Public Sector Banks (PSBs) on April 23 to review the performance of various lenders, with particular emphasis on the flow of credit to critical sectors of the economy, sources told FE.
The meeting, called by the Department of Financial Services (DFS), comes at a time when the government wants banks to satisfy the growing appetite for credit in a rapidly recovering economy that is also facing considerable external headwinds. in the wake of the Russian-Ukrainian agreement. conflict. The minister is also likely to review the progress of key government programs including the Rs 5 trillion guaranteed loan scheme (known as ECLGS) for MSMEs and other businesses.
While credit flow has improved in recent months under government leadership, bankers still need to drastically avoid risk aversion, one of the sources said. “There is scope for further credit stimulus while meeting all prudential standards, particularly when economic activities have improved in recent months due to the lifting of Covid-related restrictions,” the source said.
Non-food bank credit increased by 8% in February, against 6.6% a year earlier. On the other hand, loans to industry grew at a slower pace of 6.5% even on a favorable basis (it had only increased by 1% in February 2021). Within industry, credit growth to the metals, cement, construction, gemstones, and jewelry and textiles sectors slowed in February, although the flow of loans to several others, including infrastructure has improved.
This is despite the fact that daily liquidity in the banking system has continued to remain excess since June 2019. According to a report by CARE Ratings, the average net excess liquidity for the week to April 1 stood at 6, 27 trillion rupees, up 1.1 rupees. trillion from the previous week.
It is important to note that no public bank suffered losses in the first three quarters of FY22; in fact, together they recorded a net profit of Rs 48,874 crore during this period. This is higher than profit of Rs 31,820 crore for the whole of FY21, which was the highest in five years. According to RBI data on domestic operations, public banks’ gross bad loans fell to 8.18% of gross advances in December 2021 from 9.36% in March 2021 and 15.52% in March 2018. capital adequacy was around 14.3% in June 2021, well above the requirement of 10.875%. The improved financial situation has considerably strengthened their ability to lend adequately, according to official sources.
Already, dozens of independent analysts have cut their forecasts for India’s FY23 real growth to a range of 40 to 170 basis points, citing risks from high energy prices. Some of them expect economic growth to be between 7% and 8.5% this fiscal year.
In the run-up to Diwali in October, the finance ministry had also advised public banks to launch a nationwide lending program and take advantage of a potential surge in credit demand.
PSBs have already been asked by the Ministry of Finance to partner with fintech companies and non-bank financial companies to scale up disbursements, even for small borrowers. They were also invited to talk to exporters and various associations to support their loan needs.
The move is also expected to give a boost to a district’s export theme, a product proposed by Prime Minister Narendra Modi.