After making concerted efforts to arrest the bad loan growth in banking sector, the Government has shifted its focus on credit flow in the sector. Sensing sluggish growth in the first half of this fiscal, the Finance Ministry has stepped in to bring the sector on track, mulling various mechanisms to help grow credit offtake in the sector, mostly in public sector banks.
Finance Minister Arun Jaitley will meet all heads of public sector banks on November 23 to discuss various issues faced by the banks, including bad loans and credit flow among others, according to the sources in the Finance Ministry.
“As bad loan or non-performing asset (NPA) level has been showing a sign of easing in the near future, our prime focus will be credit growth to put all banks on tracks. Most of the banks have been asked to pull up socks and reach their credit offtake target in their respective banks as credit flow has not seen any significant improvement. The Finance Ministry has decided to meet all PSB heads in its performance review meeting which has been scheduled on November 23,” sources added.
“The review meeting will discuss all developments on NPAs, credit growth target, merger issues, financial inclusion, interest rates, appointments and other related issues of all PSBs,” it added.
The global crude level, sources said, is approaching to a comfort level of 40 dollar per barrel, which is positive signal for the economy as well as banking sector. “As inflation is under 6 per cent target set by the central bank, the monetary movement as per crude prices will give some room to cut rates by the Reserve Bank of India (RBI), which may help grow credit offtake in banking segments,” it added.
It has been observed that there is not much growth on credit happening on corporate sector in the first half of the fiscal. To pare the losses in credit flow, the bankers are cautious for the corporate sectors which have been facing pressure on bank loans due to their companies’ asset quality and other factors as well.
“The banks are deliberately cautious towards corporate credit keeping in view the biggest stress coming from the sector and rather they are relying more on retail sector from meeting their projected credit growth target by the fiscal-end,” a top SBI official said.
“While retail sector has grown well, like home loan (17 per cent), car loan (28 per cent) and personal loan (20 per cent) at SBI in H1, the corporate sector has grown merely at 8 per cent, thus taking the total credit offtake at 9.5 per cent in H1. However, we are sure at achieving credit growth at 12 per cent by the year-end,” said SBI Managing Director Rajnish Kumar.
“Even though the Government has taken a lot of initiatives, the only thing that those indicatives have to happen on the ground. Our focus will be on sectors like micro, small & medium enterprises (MSMEs) and retail segments. While we are looking at credit growth at 12 per cent by this fiscal-end, we will look at increasing it 16 per cent in the next fiscal,” said SR Bansal, Chairman and Managing Director (CMD) of Corporation Bank.
The Government in August had announced seven-point agenda, including Rs70,000 crore capital infusion in PSBs in four-year period starting with Rs.25,000 crore in the current fiscal and measures to de-stress the banks of NPAs by introducing governance reforms. The gross NPA of the PSBs rose to 6.03 per cent at the end of June 2015 as against 5.20 per cent in March 2015.
“We have seen many public sector banks have improved in bad debt recovery to bring down their NPA level, especially large PSBs including State Bank of India (SBI) and Punjab National Bank (PNB). We hope it will be easing further and the bank can reach at a comfort level in this regard. But they need to boost credit to run healthy business,” sources added.
The RBI in its September bi-monthly monetary policy review had cut interest rate by 0.5 per cent, much higher than popular expectations for a rate cut of 25 basis points. The repo rate has subsequently come down from 7.25 per cent to 6.75 per cent, the lowest in four-and-a-half years.
With the central bank’s move, some of the banks have already started initiatives how to pep up their credit growth. The ministry is mulling all kind of support in this regard in future as well. “We have good MSME credit at present but corporate and retail credits are yet to pick up. We are planning to launch some favourable schemes in the near future to help them support in their business and our realisation as well,” said a top official in a PSB.