FM Nirmala Sitharaman says not heard of any concerns about liquidity from bankers, NBFCs

There are no complaints of liquidity shortage in the system and near unanimity that most microfinance institutions in rural India are seeing strong credit demand, said Finance Minister Nirmala Sitharaman, in a media briefing after her meeting with private bankers, MFIs and non-banking finance companies (NBFCs) on September 26.

Sitharaman, flanked by heads of private banks, NBFCs and housing finance companies (HFCs), said that the first round of credit outreach programme will be held between October 3-7.

Private sector banks will be setting up stalls in loan fairs next to their state-owned peers as they have “voluntarily” agreed to participate in the government’s credit outreach program.

After the government announced the scheme for state-run banks last week, there were concerns raised on asset quality, as such kind of a lending spree had led to formation of bad loans in the past.

Private lenders that typically chase profits, will also have to share this burden with the public sector banks. However, no one is complaining yet.

Uday Kotak, managing director of Kotak Mahindra Bank, who was present at the briefing, said it is “our dharma (duty) to lend actively and prudently.”

“We see no pressure from the government on its outreach programme, we want to lend as there’s surplus liquidity,” he said.

Kotak also said that nothing is stopping the lender from linking loans to external benchmark, for which the Reserve Bank of India (RBI) has set the deadline on October 1.

So far, its mostly public sector banks that have announced their plans to link retail loans with external benchmark.

The minister said that the meeting with private lenders was like a tonic, and it was filled with positive feedback. She said that bankers are confident that the second half of the financial year will see an upturn.

In the auto loans segment, the slowdown in commercial vehicle loans was cyclical in nature, while that in the passenger vehicle loans was due to dampened sentiment. Bankers are hopeful that the issues will be over in 1-2 quarters, she said.

The minister said that there were liquidity issues in wholesale financing and not in retail loans.

Meanwhile, NBFCs brought up challenges in RBI’s Know Your Customer (KYC) norms and said that they needed a leeway to be able to enter into co-origination partnerships with big banks to push loan growth.

They also said that there was a need to raise the cap in affordable housing scheme to Rs 50 lakh from Rs 45 lakh to cater to growing demand.