Lending institutions, however, expressed concerns on asset quality and cited low demand and weakness on the ground. Banks are cautious in lending to high-risk sectors fearing future defaults
The government wants banks to lend more aggressively to productive sectors under various schemes announced by it and the Reserve Bank of India (RBI) in the wake of COVID-19. This was the essence of a meeting between Union Finance Minister Nirmala Sitharaman and heads of banks and NBFCs on September 3.
In the meeting, the FM cited the importance of credit availability for productive sectors for revival of economy and asked banks to use the liquidity made available to enhance credit growth. Lending institutions, however, expressed concerns on asset quality and cited low demand and weakness on the ground. Banks are cautious in lending to high-risk sectors fearing future defaults.
“Primarily, this was largely a routine meeting. FM wanted to seek feedback on the progress of various schemes, especially the emergency credit line guarantee scheme extended to MSMEs,” said an NBFC industry official requesting anonymity.
During the meeting, FM also sought the feedback of banks on the loan restructuring scheme announced by RBI to help banks and borrowers tide over the COVID crisis. The meeting also discussed sectors that should benefit from the recast scheme and the FM sought bank's feedback on this.
"Practically every sector will require assistance. The restructuring scheme is important in that sense," said a banking industry official.
Banks have disbursed over Rs 1 lakh crore as part of the emergency credit line guarantee scheme and has disbursed over Rs 1.5lakh crore so far.
RBI had announced several measures to help the banking sector face the COVID crisis. This include a six month moratorium loan scheme and special liquidity facilities for lending institutions to boost credit growth to industries.
The moratorium scheme has ended on August 31.It announced a one-time restructuring scheme for loans affected by the COVID crisis. An RBI appointed panel is currently preparing the modalities of the scheme.