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Opinion

Reinforcing credit flow to revive the economy

K Srinivasa Rao | Updated on February 21, 2020 Published on February 21, 2020

Boosting credit flow to key sectors such as MSMEs, automobile and housing will require block/district level agencies to work in tandem with lead banks and by making better use of business correspondents and self-help groups

最新棋牌红包扫雷credit growth is essential for enterprise to thrive but the banking industry, overwhelmed by public sector banks (psbs) in a disruptive stage, is unable to provide credit in sufficient measure to turbo charge the economy. the credit growth of banks dropped to 3.4 per cent as on january 31, 2020, from 9.3 per cent in the corresponding period last year.

to add to the gloom, the sectoral credit growth has been fragile. loans to micro, small and medium enterprises (msmes) fell from 4 per cent in december 2017 to -1.6 per cent by december 2019, to the automobile sector from 8.8 per cent to 5.7 per cent, and for housing from 17.1 per cent to 11.2 per cent.

the newly opened small finance banks (sfbs) are yet to make a significant impact on the volume of credit flow. since 50 per cent of loans of sfbs have to be below ₹25 lakh and their priority sector lending target is 75 per cent as against 40 per cent for other banks, their role may become important in dispensing micro credit. but it will take time to create the kind of differentiation the economy is looking for.

Recent RBI initiatives

to make affordable credit available to the needy sectors, the rbi directed banks to focus on faster transmission of interest rates by linking lending rates on loans to select sectors with external benchmark — the repo rate.

second, deduct the amount equivalent to the incremental credit disbursed by them as retail loans to automobiles, residential housing, and loans to msmes, over and above the outstanding level of credit to these segments as at the end of the fortnight ended january 31, 2020, from their net demand and time liabilities (ndtl). this should reduce the cost of funds for banks and encourage banks to disburse loans.

最新棋牌红包扫雷and, third, allow existing msme debts up to ₹25 crore to be restructured for another one year for entrepreneurs who have defaulted on payments but their loans can be classified as standard assets.

Recent govt initiatives

further, to curb liquidation of msmes/small businesses and retain them as functioning units, the government has advised the indian banks’ association (iba) that banks should avoid invoking the insolvency and bankruptcy code (ibc) for loans up to ₹200 crore and should work in close coordination with such units to avoid forced closure that adds to unemployment and other problems for the economy.

data show that 58 per cent of all closed cases under bankruptcy are liquidated with a haircut of 57 per cent and only 14 per cent of the cases are resolved. resolution, and not liquidation, is the objective of of ibc. msmes may also prefer to lodge a complaint against banks if loans are refused without cogent reasons.

Task ahead

最新棋牌红包扫雷the need to speed up credit flow to borrowers at the bottom of the pyramid to revive the economy is clearly an immediate priority. a compatible credit-friendly ecosystem must be built with reinforcing policy measures. the next challenge is to ensure that these policies are implemented, monitored and the objective of bridging the credit gap is achieved.

unless block/district level agencies work in tandem with lead banks and involve cooperative banks, regional rural banks and sfbs, it will be difficult to boost credit flow to sectors such as msmes, housing and automobile which have larger impact on the economy.

better use of business correspondents (bcs) and self-help groups (shgs) will be necessary to disseminate information to the potential borrowers about the new concessions. accelerating the credit flow will also require unstinted involvement of micro-governance stakeholders to identify green shoots in the economy and help them flourish.

The writer is Adjunct Professor, Institute of Insurance and Risk Management. The views are personal

Published on February 21, 2020
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