State-owned banks and Non Banking Financial Companies (NBFCs) will jointly organise loan distribution programmes in 400 districts across the country in the next one month for retail, agriculture and MSME customers, Finance Minister Nirmala Sitharaman said Thursday after a review meeting with heads of public sector banks.
To provide relief to Micro, Small and Medium Enterprises (MSMEs), the government has advised banks not to treat stressed MSMEs loans as Non Performing Assets (NPAs) till March 31, 2020, and instead work towards timely resolution of these, she said. The relief will be provided under existing guidelines of the Reserve Bank of India.
“We have decided that in 200 districts of the country between now and September 29, there shall be a gathering which the banks will have of the NBFCs with whom they have tied up and given liquidity, and retail customers of the bank or new retail customers, all coming together in a public place, or under a shamiana (tent) hopefully, where it is available for people to see (that banks and NBFCs are extending credit),” she said. Another 200 districts will be served between October 10-15.
Sitharaman said the thumb rule being used in such credit deployment activity is that for every old customer, banks should bring in five new customers. Banks will select these districts based on commercial potential.
On the relief to MSMEs, she said: “There exists a provision, given by the Reserve Bank of India, to ensure that MSMEs, if they are stressed assets, they may be SMA-1 or SMA-2 (Special Mention Accounts), the Reserve Bank’s existing provisions itself empowers the banks to not declare them NPAs even after 90 days (of overdue payments). so very clearly we have told them (banks) invoking the RBI issued guidelines, till March 31, 2020, no stressed asset MSME will be declared an NPA.” This will provide relief to banks, who will not have to make additional provisioning on such loans, as well as MSMEs who will get extra time and credit for restructuring of loans.
Sitharaman said the banks have passed on interest rate cuts to customers and worked on improving credit flow to NBFCs and the economy. Banks have bought pooled loans totalling Rs 93,018 crore from NBFCs and Housing Finance Companies (HFCs) in one year between September 2018 and September 15, 2019, the Finance Ministry said in a statement.
This includes Rs 9,155 crore of buyout done under the recently announced partial credit guarantee scheme through which the government provides partial guarantee to banks against likely loan losses. Another Rs 33,200 crore worth of proposals under the credit guarantee scheme are being examined by the banks. Credit flow to NBFCs nearly choked after loan defaults by IL&FS group started in September last year.
Following the government’s push, the state-owned banks have also entered into 14 tie-ups with NBFCs for co-origination of loans, and another 36 such tie-ups are in the pipeline. The Ministry said banks have also reduced their weighted average lending rates by 27 basis points till August 2019.
With the RBI mandating external benchmarking of loans, 15 public sector banks have announced repo-rate-linked loan products for housing and vehicles, consumer credit, cash credit limits and mortgage-based loans. Banks have already sanctioned over 1.08 lakh repo-linked proposals, amounting to about Rs 40,000 crore. “The remaining three Public Sector Banks will also be introducing such products by October 1. These measures are aimed at considerable improvement in access to affordable credit,” the Ministry said.
The government said eleven public sector banks have adopted check box-based approach on One Time Settlement (OTS) of stuck loans in a transparent manner. The government sought data from banks on OTS between July and September for the MSME clients.
To instil confidence among bankers and to protect them from commercial loan decisions that may go wrong, the Central Vigilance Commission has directed that banks set up an Internal Advisory Committee to classify cases as vigilance and non-vigilance. They will also set up an advisory board for first level examination to decide whether the case is a criminal act or a genuine commercial decision and accordingly, recommending the future course of action for large fraud cases above Rs 50 crore.
“This will instil a sense of protection among bankers from prosecution for genuine decisions and promote lending,” the government said. Credit growth in the banking sector stood at 10.1% at August-end 2019.