Sun. Jan 29th, 2023

KOLKATA: On Tuesday, Finance Minister Nirmala Sitharaman said that public sector banks (PSB) have sanctioned loans that total up to ₹5.95 Lakh Crore in the course of the last 2 months. She added that these loans will be disbursed to 46.67 Lakh accounts, all over India, that belong to applicants from MSMEs, retailers, farmers and corporate sectors.

Indian economy has been reeling under the nationwide lockdown that was effectuated from March 25 by the government. The consequential halt of all “non-essential” activities led to the the shut down of operations across many market sectors. Indian banks like PSBs were handed the onus of stabilizing the economy during this crisis while RBI pumped in liquidity worth ₹7.1 Lakh Crore into the banking sector.

Last month, RBI had also announced a targeted long term repo operations (TLTRO) scheme through which banks can borrow funds from the central bank, for on-lending. The scheme mandated that within the total size of Rs 50,000 Crore, 10% should be allocated to MFIs, 15% to NBFCs with asset size of ₹500 Crore and below, and 25% to NBFCs with an asset size between ₹500 Crore and ₹5,000 Crore, rated in investment grade.

Besides, loan sanctions to various industrial sectors, government has also been ensuring that the pandemic does not result in liquidity crisis for businesses. State-owned banks had opened an additional line of credit worth 10% of the existing fund based on working capital limits of applicants, subject to a maximum of ₹200 Crore. PSBs were able to double over credit sanctions worth ₹60,000 Crore in just 4 days since its announcement, in May 1.With all this in mind, Finance Minister Sitharaman had affirmed, “During March-April 2020, PSBs sanctioned loans worth ₹5.66 Lakh Crore for more than 41.81 lakh accounts. These borrowers are from MSME, Retail, Agriculture & Corporate sectors, waiting for disbursal soon after #lockdown lifts. Economy poised to recover.”

PSBs also sanctioned over ₹1 Lakh Crore of funds to non-banking financial companies (NBFCs) and housing finance companies (HFCs). So, yesterday finance minister’s office tweeted, “Sustained credit flow to #NBFCs & HFCs in #COVID-19. PSBs sanctioned loans worth ₹77,383 Crore between Mar 1-May 4. Inclusive of TLTRO funds, extended total financing of ₹1.08 lakh crore, ensuring business stability & continuity going forward.”

PSBs are attending to the funding needs of micro, small and medium enterprises (MSMEs), she added. The economic shutdown has hit MSMEs particularly hard as they do not have large reserves that internationally-backed corporations have. “For MSMEs and others, pre-approved emergency credit lines & working capital enhancements being prioritised by PSBs. More than 27 lakh customers contacted from March 20 and 2.37 lakh cases sanctioned loans worth ₹26,500 Crore. A work in progress,” Sitharaman’s said, in a tweet, earlier.

Industry analysts, however, are pointing out the the current contraction of Indian economy might hit small-scale or medium-scale enterprises, the hardest. Some say that when the economy moves from normal to low growth rate, current asset days (how quickly a company is able to convert its current assets into cash) for large companies rises from 139 days to 143 days. But, for micro and small companies current asset days jumps from 189 days to 220 days. This affects their funding ability, pushing them to seek higher working capital loans from banks.

In unison with that opinion, several industry sources have also been saying that MSMEs, operating across the value chain, including cycle parts, hand tools, textiles products, auto parts, toys, are facing unprecedented challenges due to depleting internal reserves and low visibility of demand till the end of 2020, at worst.

The central government had allowed the banking sector to put a moratorium of all loans outstanding, since March 1, for the next 3 months. So, with a new extension under consideration, these rising loan sanctioning figures are no surprise as several industry sectors like MSMEs need to bridge the gap in their cash flow with no overhead, say banking officials.

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