Banks to boost lending and support growth as economy sags

06 Aug 2019

Banks have agreed to step up lending, especially to sectors that have been hit hard by slack demand, and take measures to boost overall credit growth to support the needs of economy. The decision was announced at a review meeting with union minister of finance and corporate affairs Nirmala Sitaraman in New Delhi on Monday.

The finance minister on Monday reviewed the performance of banks in a meeting with the top management of public sector banks as well as private lenders such as HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank and Citi Bank.

RBI deputy governor N S Vishwanathan also participated in the review.

The meeting focused on overall credit growth to support the needs of the economy. Further, the meeting discussed ways in which banks may help some of the sectors that have been drivers of economic growth to deal with their current issues. In particular, the credit needs of the NBFC, automobiles and MSME sectors and the need for better transmission of benefits of rate cuts to borrowers and industry were discussed.

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

The meeting noted that overall growth in bank credit remained lower at 12 per cent, against a growth of 13.3 per cent at the end of March. At the same time, with turnaround in the NPA cycle, high provision cover of over 75 per cent, and record recovery, bank balance-sheets are healthier than before. Banks are now, therefore, in position to step up lending.

Contactless digital lending

Against this backdrop, banks committed themselves to step up affordable and hassle-free credit, with a special focus on the MSME and consumer finance sectors. Accordingly, banks have decided to increase the in-principle approval limit for contactless digital lending to MSMEs on the `PSB59minutes.com’ portal to Rs5 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.

Co-origination of loans

During the meeting, banks also committed to leverage co-origination of loans jointly by banks and NBFCs under RBI’s 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.

NBFC and HFC sector

The review meeting noted that bank credit to the NBFC and HFC sector has risen by nearly Rs90,000 crore since September 2018, helping address the sector’s liquidity needs. In addition, pool buy-outs of over Rs40,000 crore by public sector banks have helped the NBFC and HFC sector reduce their asset liability mismatch. Banks have now 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 Rs1 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. HFCs can then use the liquidity so provided exclusively for individual loans for affordable housing.

Automobile sector

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.

MSME sector

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. 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.

Interest rate transmission

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.

Digitalisation

With the government’s thrust on digitalization, digital transactions have grown to 769 per cent of GDP by March 2019, up from 726 per cent a year ago. The recent amendments mandating that business establishments with over Rs50 crore turnover accept digital payments and waiver of charges on NEFT and RTGS will give a fillip to further digitalisation.

During the meeting, banks have 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.

Service tax issues relating to banking

Banks also articulated some issues they have been facing in service tax, and these were taken note of by the revenue secretary and chairman of Central Board of Indirect Taxes and Customs. These will be examined by the government at the appropriate time.

The meeting is the first of a series of meetings that the finance 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.

The meeting on the banking sector will be followed by meetings with representatives of the MSME sector, the automobile sector, industry associations, financial market stakeholders, and real estate and home-buyers in coming days.

As per the plan, the finance minister and top finance ministry officials will meet representatives of MSMEs on Tuesday, auto sector on Wednesday, industry associations on Thursday, stock market and investor community on Friday, and real estate and homebuyers on Sunday.

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.