No MSME Loans As NPA In FY20 Fiscal, PSBs To Hold Loan Melas: FM

New Delhi: In a public outreach exercise, Finance Minister Nirmala Sitharaman on Thursday said public sector banks will organise credit “shamiana meetings” in 400 districts beginning October 3 to provide loans to NBFCs and retail borrowers, including homebuyers and farmers and banks won’t declare any stressed loan account of MSMEs as NPA till March 2020 and will work on recasting their debt.

“There already exists a circular from the Reserve Bank that provides for stressed loan accounts of MSMEs not being declared non-performing assets (NPAs),” she said.

Finance and banking secretary Rajeev Kumar said the Prudential Framework for Resolution of Stressed Assets of June 7 is existing and banks have been asked to activate the circular while dealing with MSME stressed loan accounts.

“PSBs will focus on giving loans to the ‘RAM’ category — retail, agriculture and MSMEs,” Sitharaman said at a press conference after meeting PSU bank heads.

She said the idea is to ensure maximum credit disbursal during the festive season. The aim is bring all together at one place where retail customers can come and avail credit from banks and NBFCs.

“We want banks to extend as much liquidity as they can to customers in the lead up to the festive season. Banks, NBFCs who have now benefited from liquidity given to them, and retail customers who would come and claim credit, will all be there. Scheduled banks will now show that they are indeed pushing liquidity to the NBFCs or directly to the customer,” she said.

The open house public meetings involving banks, NBFCs and retail buyers will be held in two tranches. The first will be held between October 3 and 7 in 200 districts, while the remaining 200 will be covered October 11 onwards.

For every existing customer, banks will have to bring in five new customers, the minister said, adding that there would not be any hard and fast rule. Also, banks have identified some NBFCs that they can lend to so that liquidity and credit is made available to those seeking money, she said.

She also said that several MSMEs want one-time settlement of their outstanding dues, which should be settled expeditiously by the banks.

“The government wants banks to recast MSME loans instead of declaring it a NPA,” she added. As per the Finance ministry statement, today’s announcements were in series of a number of steps the government has already taken. Discussion on the performance of the banks was carried out with focus on supporting credit needs of the economy, in particular the needs of sectors such as NBFCs, HFCs, MSMEs, sectors under stress and enabling better access to cheaper credit.

At the end of August 2019, overall credit growth in the banking sector stood at 10.1% on year-on-year basis. This is in parallel with record recoveries and cleaning of bank balance-sheets showing better quality of asset book.

Banks’ loan disbursement to key sector remains robust, with disbursement of Rs 11.83 lakh crore done for MSME sector in FY 2018-19 as against Rs 8.53 lakh crore done in FY 2017-18. Banks have also continued to support housing sector by disbursing Rs 2.19 lakh crore for home loans in FY 2018-19 as against Rs 1.81 lakh crore in FY 2017-18.

Pool buy-out of NBFC/HFC post Sep-18 till Sep 15 was Rs 93,018 crore, including Rs 9,155 crore under the newly launched Partial Credit Guarantee
Scheme. Proposals of another Rs 33,200 crore under the new scheme are also in the pipeline.

Following the announcement on August 23, banks have already entered into 14 tie-ups with NBFCs for co-originating loans, with another 36 such tie-ups in the pipeline. This will help borrowers in terms of better access to affordable credit, while yielding business benefits to both banks and NBFCs.

Acting upon their commitment to review lending rates in the context of policy rate cuts, public sector banks have effected weighted average rate cuts of 27 basis points till August 2019 and another 10 out of the 18 public sector banks have effected additional rate cuts ranging from 15 to 5 basis points in the current month.

Further, to enable automatic transmission of externally benchmarked rates, 15 Public Sector Banks have already introduced Repo-rate-linked loan products for housing and vehicles, consumer credit, cash credit limits and mortgage-based loans.

Already, over 1.08 lakh Repo-linked proposals, amounting to over Rs 40,000 crore, have been sanctioned. The remaining three public sector banks will also be introducing such products by October 1.

These measures are aimed at considerable improvement in access to affordable credit. Following up on the earlier announcements on enhancing customer ease for credit wherein online tracking of loan applications and mandatory, release of security documents 15 days post loan closure was proposed. Public sector banks have passed on instructions at branch level and process of technology changes to track it electronically is also underway.

This will help in increasing transparency of loan processing for customers. To boost the resolution process, OTS system has been made more transparent with introduction of check box approach based OTS policy by 11 public sector banks, while remaining banks are at various stages of implementation.

This will ensure faster resolution through a non-discretionary and non-discriminatory system. To support decision-making and to prevent harassment for genuine commercial decisions by bankers, CVC has issued directions that Internal Advisory Committee in banks would classify cases as vigilance and non-vigilance. An advisory board would take up first-level examination to decide whether the case is a criminal act or a genuine commercial decision and accordingly, recommend the future course of action for large fraud cases above Rs 50 crore.

This will instil a sense of protection among bankers from prosecution for genuine decisions and promote lending. Public sector bank heads have expressed their resolve to take prudent commercial decision without any fear now.

Since the announcement of consolidation of public sector banks on 30.8.2019, Boards of all ten banks have accorded in-principle approval to the proposals.
Heads of concerned banks assured Finance Minister that there will not be any disruption in credit decision making due to process of amalgamation and also that open communication to the employees and customers is being carried out for maintaining business as usual.

The employee interests are being protected through best of benefits and learning and growth opportunities for the employees.