India is going through a 40-day nationwide lockdown which has effectively halted all non-essential economic activities. This prolonged restriction of movement has rendered the majority of Indian households with no income. Now, Indian Government has doubled up on pushing state-run banks to endorse lending as our country bears through an acute economic crisis.
Industry sources and leaked insider documents are saying that along with asking state-run banks to push lending, the government has directed financial institutions to submit daily reports detailing the volume and scale of loans that are sanctioned.
In a letter, seen by Reuters, dated April 17, The Ministry of Finance has asked banks to furnish detailed data about loans which were sanctioned after the beginning of lockdown. These details include specifics on which market sectors were availing them.
This push comes in at a time when the banking sector is filled up to the brim with liquidity that was pumped in to boost lending and revive flagging growth, by RBI. RBI had followed it up with a recent 75 basis points(bps) rate cut and 90 bps repo rate cut.
The economic slump that our country is witnessing right now, has left tens of millions of jobs in jeopardy.
Several senior bankers are saying that despite this push by RBI, lenders are reluctant to open the tap for creditors as fears of even higher default rates remain with businesses and jobs, at risk. The Indian banking sector is already shouldering nearly ₹1120 Lakh Crore in bad debts and it needs more guarantees from the government before sanctioning more loans, said some unnamed banking officials.
Some bankers are saying that after the letter from FM, select state-run banks had started setting branch-wise targets to ensure new loans are being sanctioned. They are going as far as asking branch managers for clarification if the branch’s quotas are not met.
However, our government, particularly that letter, did not set any such hard lending targets for banks to follow. So, it still is a commercial decision, said one banker.
The Indian banks’ Association, an industry body of lenders and the Ministry of Finance did not respond to any requests for comments, regarding this story.