Give out loans: Finance Minister tells banks

The Centre on Thursday resorted to disbursing cheaper credit to borrowers in order to boost the slowing economy, a measure that has led to accumulation of bad loans by banks and rendered their balance sheets shaky in the past.

Finance Minister Nirmala Sitharaman asked the state-owned banks to lend as much as they can to customers in the run-up to the festive season. She also asked lenders to organise ‘loan melas’ and look for new people who have never availed loans before.

Additionally, she asked banks to lend liberally to micro, small and medium enterprises (MSMEs) and directed them not to declare any stressed assets of MSMEs as NPAs till March 2020.

The minister unveiled the measures after a review meeting with public sector banks, which have been accused of going slow on extending credit to non-banking finance companies as also other borrowers, even after the Reserve Bank of India infused nearly Rs 3 lakh crore of cash into the system in less than one year.

“Want the banks to give loans to five new customers for each existing one. The borrowers could be small farmers, home buyers or anyone who wants to start a small business,” she said, nudging the banks to lend aggressively to boost festive spirit among consumers, who have not only resisted buying cars and white goods but also non-durable consumer items such shampoo, paste and biscuits.

“Open house public meetings with NBFCs and retail borrowers in 400 districts will begin next week to provide credit to borrowers, including homebuyers and farmers. These will be held in two tranches. The first will be held between October 3 and 7 in 200 districts, while the remaining 200 will be covered October 11 onwards,” Sitharaman told the reporters elaborating the government’s loan mela programme after her meeting with bankers.

The step, the analysts said, will add more NPAs to banks already saddled with bad loans. PSU banks have over Rs 9 lakh crore of bad loans on their books as on March 2019. “While some disbursal of loans is required to boost lending, care has to be taken on the NPA front. We are still not out of the woods on NPAs. Extending the time limit to declare NPAs in the MSME sector will lead to under reporting of bad loans,” Kavita Chako, senior economist with Care Rating told DH.

“The banks offer loans on low rate of interest under instructions from the government, which starts pressurising them for their recovery when they turning into NPAs. This makes lenders ever more weak and the economy weaker,” said a banker on the condition of anonymity.

Loan melas were a popular tool during the UPA regime under which crores of rupees were given away to villagers without any guarantee, most of which turned sticky and piled up NPAs.