August 24, 2019 1:27:27 am
The government announced immediate capital infusion of Rs 70,000 crore into public sector banks that would help them boost lending by as much as Rs 5 lakh crore into the economy. The equity infusion which is usually done in installments during the year has been made upfront to arrest a slowdown in the economic growth. The Finance Ministry is also working with banks to ensure lower lending rates in the economy even as many state-owned banks have started linking their retail loans to the Reserve Bank of India’s repo rate to reflect better transmission of lower rates.
Finance Minister Nirmala Sitharaman Friday also announced additional liquidity support of Rs 20,000 crore to housing finance companies (HFCs) by the National Housing Bank (NHB), thereby increasing the total support to Rs 30,000 crore.
“Banks have again decided to launch repo rate or external benchmarking linked loan products. This will therefore result in reduced EMI for housing loans, vehicle and other retail loans by directly linking repo rate to the interest rates which means the moment reduction happens, it will directly benefit end customers,” Sitharaman said, adding that the move will also lead to cheaper working capital loans for industry.
There is generally a lag in transmission of rate cuts by the RBI and the effective rate to the borrowers. The RBI has this year cut interest rates by 110 basis points in four installments but banks have passed only a part of it to borrowers. Before the last reduction earlier this month of 35 basis points, the bank on an average had passed only 29 basis points out of 75 basis points cut affected during 2019.
“Upfront we are releasing the Rs 70,000 crore and additional lending and liquidity to the tune of Rs 5 lakh crore can be made available by providing this upfront capital for the PSBs. This was announced in the budget, we are doing it upfront now. This will benefit all the corporates, retail borrowers, MSMEs and small traders as well. We are closely working on ways in which this flow will happen to the NBFCs,” Sitharaman said. The finance minister said NBFCs are receiving liquidity from the banks and are also moving towards providing credit to people and therefore, the NHB related increase in funding from Rs 20,000 crore to 30,000 crore is sure to make a difference.
The finance minister announced partial credit scheme for purchase of pooled assets of non-banking finance companies and HFCs up to Rs 1 lakh crore to be monitored at the highest level in each bank. Also, NBFCs will be permitted to use the Aadhaar authenticated ‘Know Your Customer’ (KYC) by banks to avoid repeated processes.
The government has decided to make necessary changes in PMLA (Prevention of Money Laundering Act) rules and Aadhaar regulations to ease the lending process. Public sector banks will also be mandated to return loan documents within 15 days of loan closure. Online tracking of loan applications by borrowers like it is done for tracking of parcels was also announced.
The FM also announced check-box based one-time settlement (OTS) process for MSME loans and measures to protect bank officers deciding on the loan settlement process. She said if the check-box approach is taken up by the MSMEs, there is no reason why somebody else should come and decide the matter.
The FM said that government has taken adequate steps to make sure that there shall be no harassment of the official for the risk that he is taking to reach OTS. “In order to protect honest decision making, the CVC (Central Vigilance Commission) has issued direction that internal advisory committee in banks to classify cases as vigilance and non-vigilance. Decision by IAC and bank’s CVC will be treated as final because that happens there and then decision taking risk will not be laden in the heads so we expect that will protect honest decision making in the banks,” Sitharaman said.
PNB Housing Finance Managing Director Sanjaya Gupta said, “This is a welcome move which will lift the sector sentiments. Industry at large has been looking forward to such initiatives to boost the liquidity and overall economy. It will support growth and ease the liquidity crunch in the housing finance sector. HFCs will now get an additional Rs 20,000 crore from NHB. This will help to ease the pressure. The initiatives announced have potential to kick start a sluggish real estate sector.”
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