NEW DELHI: In a bid to push credit before the festival season and revive growth, the government has asked state-run banks to hold open houses in 400 districts of the country, tasking them with extending credit to five new customers for every existing borrower.
In addition, banks will not declare any stressed assets of MSMEs as non-performing until March 31, 2020, to help them recover.
Banks have acquired Rs 9,155 crore worth of pooled assets of nonbanking finance companies and housing finance companies under the partial credit guarantee scheme, finance minister Nirmala Sitharaman said at a media briefing after reviewing the performance of state-run lenders on Thursday. Proposals for acquiring another Rs 32,000 crore under the scheme are in the pipeline.
“In public view, the scheduled banks will now show that they are really pushing liquidity through the NBFCs or directly to customers,” the finance minister said, rebuffing suggestions that the scheme would be reminiscent of the loan melas of the earlier era.
Lack of Credit a Key Reason
“This is more enabling the system to function,” the minister said. “So, it is definitely a different type of approach (from loan melas) to reach credit.”
By September 29, as the festival season kicks in, banks will hold public gatherings in 200 districts along with the NBFCs they support to push credit to self-help groups, MUDRA borrowers, customers looking for vehicle and housing loans, MSMEs and farmer producer organisations.
“Any of them can come there and that day, sitting there, they can sort out their loan requirements,” Sitharaman said. The minister said the idea is to ensure maximum credit disbursal during the festive season, the busiest shopping time of the year. “For every one old customer who wants credit, I have said five new ones will be brought. That’s the thumb rule we have offered,” the minister said, adding that the remaining 200 districts will be covered from October 10 to 15.
“… for every one customer who wants a loan, please give him, but for every one who you give now, you will bring five newer ones, fresh, somebody who has never taken a loan from a bank,” she said, adding that banks readily agreed to the suggestion and that the effort will be spearheaded by minister of state for finance Anurag Thakur.
Lack of credit is considered a key reason for the slowdown in the economy, with growth recorded at a six-year low of 5% in the April-June quarter. Overall banking sector credit grew 10.1% at the end of August from a year earlier.
The banks will decide which districts to cover and the programmes will be attended by ministers from the council or members of Parliament from the region.
Sitharaman said public sector banks would not declare stressed accounts of micro, small and medium enterprises as non-performing until the end of the current financial year in March 2020 under a Reserve Bank of India provision already available to lenders.
These could be special mention accounts – SMA-1, where principal or interest payment is overdue between 31-60 days and SMA-2, where principal or interest payment is overdue between 61-90 days.
“… the bank has enough power given by the RBI to not declare them NPA and, if possible, work it out with them to restructure their loan so that they can get out of the difficult situation,” Sitharaman said, suggesting that they could even extend additional credit if needed.
In a statement, the government also detailed the progress made on other measures announced earlier.
State-run banks had set up internal advisory committees to classify cases of default in line with directions from the Central Vigilance Commission. The minister said the advisory boards would look into cases of defaults as “vigilance” or “non-vigilance” cases, which would recommend the future course of action for large fraud cases above Rs 50 crore.
“This will now instil a sense of protection among bankers from prosecution for genuine decisions that they have taken,” she said.