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Govt must assure bankers to lend without fear

As the 23.9 per cent economic contraction in the April-June quarter hit headlines last week, no prizes for guessing that the Center’s immediate challenge will be to revive the economy. Amid limited fiscal space, Finance Minister Nirmala Sitharaman in May had announced a Rs 20 lakh crore stimulus package—the announcement itself was made in five tranches.

Despite these big-bang announcements, many sectors including the critical micro small and medium enterprises (MSMEs) are staring at severe cash crunch.

At a time when the government’s own fiscal space is limited, it is important that the country’s banking sector opens up to lending more freely. Banks can play a significant role in boosting the country’s economy but unfortunately data released by the Reserve Bank of India show that credit offtake continues to remain suppressed.

Recently, at a webinar organized by IMC Chamber of Commerce and Industry, the State Bank of India’s managing director Arijit Basu said that banks should not resort to lend recklessly even as he stressed the need for lenders to come forth in reaching out to customers.

“As bankers, the responsibility on us is even more. We will have to ensure that we reach out to clients, new customers but at the same time have to ensure that we do not repeat mistakes of the past,” said Basu.

Banks’ senior officials are under stringent scrutiny from authorities like the Central Vigilance Commission (CVC), the enforcement directorate (ED), and the Central Bureau of Investigation (CBI). “In case a loan portfolio goes wrong, the top management has to go through detailed scrutiny. Who wants to take any chances? People have started playing safe,” a senior public sector bank executive said.

Lending by nature is a risky business and bankers need to take chances. When you lend Rs 100, you need to keep in mind that a portion of it may actually turn non-productive.

Today, it is a favorite pastime of pundits to discuss the dealings of the notorious Vijay Mallya, erstwhile promoter of the defunct Kingfisher Airlines, entangled in one of the biggest banking frauds. However, when Mallya’s going was good, he was every lender’s hero. After Mallya, there has been a host of other banking scandals relating to diamond trader Nirav Modi besides the Punjab and Maharashtra Co-operative (PMC) Bank and Yes Bank scams.

While it is true that there have been lapses from the bankers’ side, the fact remains that no one came forward at the right time to warn the lenders. The credit risk of a company is assessed by multiple hands including the ratings agencies. So to put the blame only on the lenders is not prudent. It only creates more barriers.

It is imperative for the government to create an environment which encourages banks to open their purses, even as their level of bad assets has increased, especially now as demand continues to remain tepid.

RBI data reveal that on a year-on-year basis, non-food bank credit growth in July this year stood at 6.7 per cent. However, in the April-June period gross non-food bank credit is at a negative compared to the corresponding last year. Barring agriculture, credit demand in most other segments remained weak through the first quarter.

The Narendra Modi government has repeatedly underlined the need to provide full autonomy to the public sector banks. Finance Minister Sitharaman and her predecessor the late Arun Jaitley repeatedly said that the state-owned banks will be given freedom to decide who to lend and who not to and that there will be no state interference. But, unfortunately, this mantra has not been followed in letter and spirit.

In fact, today bankers, especially those in the top management, live in fear and this has led to reluctance in lending as the focus has been only on the non-performing asset levels. In 2018-19 the gross NPA stood at Rs 9.4 lakh crore.

It is important to direct banks to lend freely, allow them take measured risks, and assure them that the top bosses unnecessarily will not come under major scrutiny..