Amid declining credit to micro and small enterprises, finance minister Arun Jaitley on Sunday said more capital for public sector banks will prompt them to increase credit flow to MSMEs. This will ensure that “third engine” of private investment is fired up to propel growth and create jobs, he said.
Last month, the government had unveiled a mega capital infusion worth Rs 2.11-lakh crore two-year road map to strengthen PSBs, which includes recapitalisation bonds, budgetary support and equity dilution.
While there has been a significant increase in public investment and FDI inflows, but the private investment — a key growth engine has continued to lag. Last year’s Demonetisation decision has especially affected the MSMEs adversely.
“If you look at the big picture of the economy where governments are spending a lot of public money, a lot of foreign investment is coming in. We need the third engine (private investment) also to fire and a robust private sector and MSME sector so that the optimum growth rate which we have the potential for can be reached,” Jaitley said in his address to top officials at the first PSB Manthan in Gurugram.
He said one of the focus areas banks have taken up is to support MSMEs (micro, small and medium enterprises) in the first instance because the sector creating jobs and giving boost to the economy has no access to international finance or bond market.
Latest data from the Reserve Bank of India shows that credit to micro and small industry contracted at 3.4 per cent in the financial year so for while for medium sector industry the credit contraction was at the rate of 5.7 per cent.
Jaitley said the government has decided to put in more capital through bonds and banks’ equity expansion and “therefore, it is the country which is virtually going to pay to keep the banking system in good health”.
He assured the bankers who gathered here that “you won’t find us interfering” in commercial transactions, but “when the system is making all these changes and all these monetary contributions in order to strengthen the banking system, we want robust public sector banking system so that your ability to support growth itself increases”.
Non-performing assets of PSBs have increased to Rs 7.33 lakh crore as of June 2017, from Rs 2.78 lakh crore in March 2015.
In the last three-and-a-half years, the government pumped in more than Rs 51,000 crore capital in PSU banks. With PTI