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Banks in position to step up lending and support industries

Hassle-free cash-flow to MSMEs


Hassle-free cash-flow to MSMEs

Minister Sitharaman addressing a press conference after the meeting with the Heads of Public/Private Sector Banks, in New Delhi on 5 August 2019.
The Minister of State for Finance and Corporate Affairs, Anurag Singh Thakur, and the Secretary, Department of Financial Services, Rajiv Kumar were part of the meeting.

Indian banks are now in position to step up lending with turnaround in the non-performing assets (NPAs) cycle, according to assessment from a sector review meeting held by Finance Minister Nirmala Sitharaman in Delhi.

Overall credit growth from the banking system continues to be at 12%, which is marginally lower than the growth of 13.3% at the end of March, said Finance Ministry on 5 August 2019.

At the same time, with turnaround in the NPA cycle, high provision cover of over 75%, and record recovery, bank balance-sheets are healthier than before.

Against this backdrop, banks committed in the review to step up affordable and hassle-free credit, with a special focus on the MSME and consumer finance sectors.

As part of this, banks have decided to increase the in-principle approval limit for contactless digital lending to MSMEs on the portal to Rs.5 crore.

Going forward, banks would be expanding the contactless digital lending facility through the portal to retail lending products for personal loans, vehicle loans and home loans, said the Ministry.

In the review, banks also committed to leverage co-origination of loans jointly by banks and Non-Banking Finance Companies (NBFCs) under Reserve Bank of India’s (RBI) co-origination policy.

This will combine the advantages of lower cost funds and large financing capacity of banks with the doorstep reach of the NBFC sector, to the benefit of both. It will also enhance consumer ease through doorstep delivery of lending and repayment services.

It was noted in the review that bank credit to the NBFC and Housing Finance Company (HFC) sector has risen by nearly Rs.90,000 crore since September 2018, helping address the sector’s liquidity needs.

In addition, pool buy-outs of over Rs.40,000 crore by Public Sector Banks have helped the NBFC and HFC sector reduce their asset liability mismatch.

In the review, banks committed to continue supporting the sector by making prudent use of partial credit guarantee from the Government for purchase of pooled assets of NBFCs and HFCs of up to Rs.1 lakh crore.

National Housing Bank has also brought out a new scheme to enable HFCs to take refinance from NHB for their pool of existing developer loans as well as individual housing loans and HFCs can then use the liquidity so provided exclusively for individual loans for affordable housing.

The automobile sector has witnessed falling sales. Sales in this sector have been driven by vehicle loans, in which NBFCs had a major share. In view of the decline in NBFC credit for vehicle finance, banks have committed to step up credit support for vehicle purchases.

Banks would redouble efforts to extend cheaper, hassle-free and cash-flow based credit to MSMEs by leveraging GST, digital payments and alternate data. Banks would also expedite restructuring of viable MSME units facing stress, under the special MSME restructuring dispensation available till March 2020.

The recommendations of the U. K. Sinha committee would be taken forward, said the Ministry.

The committee had highlighted the need to meet working capital requirements of India’s growing MSME service. In the review, banks agreed to come out with specific working capital products for service sector MSME units.

Since December 2018, monetary policy has been eased substantially with policy rates being cut by 75 basis points and the policy outlook being changed to accommodative. Banks need to commensurately transmit rate cut benefit in lending. In the meeting, banks agreed to take steps as per RBI guidelines to review their lending rates.

As a result of Government’s thrust on digitalization, digital transactions have grown to 769% of GDP by March 2019, up from 726% a year ago. The recent amendments mandating that business establishments with over Rs.50 crore turnover accept digital payments and waiver of charges on NEFT and RTGS will give a fillip to further digitalisation.

In the review, banks committed to review charges on digital payments with a view to making them cheaper for customers vis-à-vis cash payments. They also committed to expand services available through mobile and Internet banking and offer services on these digital platforms in regional languages as well.

Banks also articulated some issues they have been facing in service tax, and these were taken note of by the Revenue Secretary and Chairman, Central Board of Indirect Taxes and Customs.

These will be examined by the Government at the appropriate time, said the Ministry.

The Finance and Corporate Affairs Minister was joined in the review meeting by top management of Public Sector Banks, HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank and Citi Bank. RBI Deputy Governor N. S. Vishwanathan also participated in the review.

It is the first meeting of a series of meetings the Ministry is convening to discuss current economic issues with key stakeholders, including some of the industry sectors whose growth has been affected in recent months.

This will be followed by meetings with the MSME sector, the automobile sector, industry associations, financial market stakeholders, and real estate and homebuyers in coming days.

The Government will factor in the takeaways from these consultations for appropriate policy responses to maintain a high growth trajectory and to address sector-specific issues.

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