Finance Minister Nirmala Sitharaman will hold a review meeting with chief executive officers (CEOs) of public sector banks Monday to discuss various issues, especially the liquidity support given to non-banking finance companies (NBFCs) and small units. The meeting is expected to review fund flow to stressed NBFC and MSME (micro, small and medium enterprises) sectors.
Banks are expected to present data on partial credit guarantee scheme and fund raising from market to enhance their capital base. “I have asked banks to come up with data on banks’ liquidity support to NBFCs and MSMEs,” Sitharaman had said in Mumbai last week.
In August, the central government issued guidelines on operationalising Rs 1 lakh crore partial guarantee scheme under which public sector undertaking banks can purchase high-rated pooled assets of financially-sound NBFCs.
This liquidity support was extended when NBFCs, including housing finance companies (HFCs), came under stress following a series of defaults by the group companies of IL&FS in September last year.
When asked earlier about the monetary policy transmission by lenders, the Finance Minister had said, “The RBI has already taken it up with banks. They are talking to banks.”
Data on partial credit guarantee scheme expected
At a time when the non-banking finance sector, including, housing finance companies, is facing serious liquidity constraints — for which the IL&FS defaults saga is largely responsible — the Finance Minister’s meeting with chief executives of public sector banks is expected to focus on pushing them to lend more to NBFCs. Under the Centre’s partial credit guarantee scheme announced in the Budget, banks will purchase high-rated pooled assets of financially-sound NBFCs. At Monday’s meeting, the public sector banks are also expected to present data on this scheme.
In the fortnight ended September 27, 2019, non-food credit growth slowed to as low as 8.7 per cent year-on-year to Rs 97.11 trillion, according to data released by the Reserve Bank of India (RBI) last week.
The banking system had previously registered single-digit growth of 9.9 per cent in credit offtake in the fortnight ended December 8, 2017.
Monetary transmission has remained staggered and incomplete despite several rate cuts by the central bank.
As against the cumulative policy repo rate reduction of 110 basis points (bps) during February-August 2019, the weighted average lending rate (WALR) on fresh rupee loans of commercial banks declined by only 29 bps.
However, the WALR on outstanding rupee loans increased by 7 bps during the same period.
On October 4, the Monetary Policy Committee of the RBI reduced the repo rate to 5.15 per cent from 5.40 per cent.
The fifth consecutive cut this year announced by the central bank has brought down the repo rate — the rate at which the RBI lends funds to banks — by 135 bps from 6.50 per cent in 2019.