Public sector bank chiefs are being questioned by the Reserve Bank of India as to why their lending operations have not taken off despite many measures initiated by the banking regulator and the government. The Governor of the central bank Shakthikanta Das held a meeting with the heads of the PSBs to take stock of the situation and had several questions for them, it is reported.
While the RBI is looking for growth in the credit offtake, the RBI data actually shows a drop in non-food credit from banks from the last year by 6.3%. The Governor was keen to know why this was happening when he and his team have been taking steps to improve the liquidity and had brought down the rate of interest constantly. RBI has lent over ₹75,000 crore to the PSBs at concessional rates of interest using the long-term repo operations (LTRO) route. Another concession allowed was that the banks could exclude specified loans in the housing, auto and loans to SMEs while reporting their CRR (cash reserve ratio). It is reported that the RBI Governor wanted to know how and why the private sector banks were able to show a better record in terms of increasing the quantum of loans sanctioned.
Those in the know claim the bank chiefs explained their positions. One of the points raised by them was that there was lack of clarity on the definition of willful defaulters and those who diverted the funds. These have been the old ills of the Indian banking system. Promoters of multiple companies will avail loans on one company’s name and then divert the funds to another venture within their group. If that venture is already in trouble due to other factors, this new loan will also become an NPA (non-performing asset) and the banks cannot again lend to the same promoters. This ultimately shrinks the universe as far as the banks are concerned in terms of the eligible borrowers out there. Banks which have had high levels of NPAs and have faced frauds being committed on them by borrowers like the Nirav Modi-PNB scam, are showing excessive caution while lending.
The non-banking financial companies too figured in the discussions.
It may be recalled that the Finance Minister, in her address to some bank officials, had given a call to them to go back to the branch level and establish a connect with their customers and create a better rapport.