Fri. Mar 29th, 2024

According to Government sources, Finance minister Nirmala Sitharaman is going to hold a meeting with PSU Bank chiefs, today. The aim of this meeting was to discuss and review the core financial issues that the Indian economy is facing amidst the nationwide lockdown. These issues range from the credit flow to key sectors like MSMEs and NBFCs, rate transmission to borrowers to the progress under the targeted long-term repo operations (TLTRO) before the second fiscal stimulus package is released.

The meeting, to be held via video-conferencing, was to take stock of the deployment of excessive funds by banks under the reverse repo route and the repayment moratorium as well, sources were saying. But now, other sources have notified that this meeting has been postponed to later this week. The agenda, however, still remains the same, they added.

The RBI had on March 27 slashed the benchmark interest rate by a massive 75 basis points and also announced a three-month moratorium to be given by banks to provide relief to industries and individuals who were facing a cash crunch because of the current crisis.

Earlier this month, RBI Governor Shaktikanta Das held a meeting with heads of both public and private sector banks to take stock of the economic situation and review implementation of various measures announced by the central bank. Hence, this discussion between the FM and PSU banks were supposed to be of great importance as they are the driving force of the package released by the government, thus far.

For context, in the first mega economic package, the Finance Ministry had pledged stimulus worth₹1.7 lakh crore to support fledging industries. So, before rolling out the most-awaited second fiscal stimulus package, the government has planned to secure a higher revenue on fuel by raising excise duty on petrol and diesel and increased the projected annual borrowing by more than Rs 4 lakh crore this fiscal.

Public sector banks have sanctioned loans worth ₹42,000 crore to the MSME sector and corporates since the start of the lockdown. The role of PSU banks can also be understood by the fact that state-run banks have contacted more than 95% of borrowers, eligible for working capital enhancements and emergency credit lines, between March 20 and May 6, according to the Ministry of Finance. Under the emergency credit line, for example, borrowers can avail a maximum of 10% of the existing fund based working capital limits, subject to a cap of ₹200 crore.

Furthermore, the finance minister had on Thursday said as many as 3.2 crore borrowers have taken advantage of the three-month moratorium scheme on repayment of loans announced by the Reserve Bank.“PSBs complemented RBI on loan moratorium. Their effective communication & proactive actions ensured that over 3.2 cr. a/c availed 3-month moratorium. Quick query redressals allayed customer concerns. Ensuring responsible banking amid #lockdown,” she had tweeted.

FM Sitharamam also shared that state-owned banks have sanctioned loans worth ₹5.66 lakh crore to borrowers during March and April, and disbursement will start soon after the lockdown is lifted. She said the banks sanctioned loans worth ₹77,383 crore between March 1 and May 4 to provide sustained credit flow to non-banking finance companies (NBFCs) and housing finance companies.

Apart from that, under TLTROs, liquidity to the tune of ₹1.08 lakh crore was extended, “ensuring business stability and continuity going forward”, she had said. Meanwhile, MFI association Sa-Dhan, in a communication to the finance minister, said the sector expects to lend close to ₹50,000 crore over the next six months, mostly by way of emergency or top-up loans to existing borrowers.

However, it expressed concerns over the possibility of over 30-40% shortfall in collections by September and a potential default by MFIs to their lenders to the extent of 10%. There is likely to be a surge in demand from microfinance borrowers, given they urgently need credit to rebuild their lives and stabilise their incomes. However, field collections will be affected given the negative impact of the COVID-19 crisis on creditors’ incomes as well as uncertainty in operations, post lockdown, in many districts, Sa-Dhan said.

Many of the mid and small MFIs will struggle to meet their operational expenses in full, with a potential shortfall of Rs 1,500-2,000 crore. The industry employs close to two lakh urban and rural youths, and sustaining their jobs is also an obligation for the sector, it added.

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