No stressed MSME loan can be declared NPA till March 2020; govt asks banks to hold loan melas in 400 districts from 3 Oct

New Delhi: In a bid to boost lending, the government on Thursday asked public sector banks to hold ’loan melas’ in 400 districts to lend to desirable shadow banks and retail borrowers, and said no stressed loan account of MSMEs will be declared an NPA till March 2020. Grappling with six-year low GDP growth and a 45-year high unemployment rate, the government is looking to boost credit that will bring liquidity for businesses and create jobs. Finance Minister Nirmala Sitharaman, who has since her maiden Budget on 5 July announced measures in three tranches for boosting the economy, held a meeting with heads of public sector banks (PSBs) on Thursday to review liquidity or money flow in the system and transmission of lower benchmark interest rates to borrowers. Ahead of the festive season, banks will hold ’loan melas’ in 400 districts in two tranches beginning 3 October to approve loans to any retail or NBFC borrower, she said. PSBs will focus on giving loans to the ‘RAM’ category—retail, agriculture and MSMEs, the minister said. To help the job-creating small and micro enterprises, she said banks have been asked to follow the hitherto little used RBI circular of 7 June which directed banks not to consider any stressed MSME loan account as NPA and instead look at recasting the debt. [caption id=“attachment_5044341” align=“alignleft” width=“380”]  File image of Finance Minister Nirmala Sitharaman. PTI[/caption] “But till now, banks did not invoke it for whatever reason. Now, I’m saying, in invoking that, the banks can or may use this provision to make sure that SMA1 and SMA 2 of MSMEs are not declared NPA till March 31, 2020,” she said. Loans are classified as special mention accounts (SMAs) after showing signs of stress. She also said that several MSMEs want one-time settlement of their outstanding dues, which should be settled expeditiously by the banks. “Clearly I have told the banks that from 1 July till 30 September, they should give me a complete picture of how many have sought and for how many they have settled one-time settlements,” she added. The meeting comes a day before the all-powerful GST Council is to meet in Goa to consider demands of industries, ranging from biscuits to car makers, for a cut in tax rates to overcome slowing demand.

Announcing the ’loan melas’ ahead of ‘Diwali’, the minister said “there shall be gatherings which banks will have of NBFCs with whom they have tied up and given liquidity and retail customers of the banks” to encourage customers, including retail, agriculture, MSME, and homebuyers to take loans.

The loan melas may be held in shamiyanas (tents), she said and added the banks will have to show they are pushing liquidity to NBFCs and customers. For every existing customer, banks will have to bring in five new customers, the minister said. During the meeting with the bank heads, the finance minister reviewed the lenders’ performance and held discussions on overall credit growth with focus on disbursements to key sectors to support the needs of the economy. On bank unions’ threat of two-day strike on 26 -27 September, the minister said the government would address concerns raised by the employee unions on the proposal to consolidate 10 public sector banks into four. In a statement, the finance ministry said at the end of August 2019, overall credit growth in the banking sector stood at 10.1 per cent on year-on-year basis. This is in parallel with record recoveries and cleaning of bank balance-sheets showing better quality of asset book. Bank loan disbursements to the MSME sector stood at Rs 11.83 lakh crore in 2018-19, as against Rs 8.53 lakh crore done in 2017-18. Banks have also continued to support housing sector by disbursing Rs 2.19 lakh crore for home loans in 2018-19 as against Rs 1.81 lakh crore in the preceding year, it said. On bank lending rates in the context of policy rate cuts, it said public sector banks (PSBs) have effected weighted average rate cuts of 27 basis points till August 2019 and another 10 out of the 18 state-owned lenders have effected additional rate cuts ranging from 15 to 5 basis points in September. Further, to enable automatic transmission of externally benchmarked rates, 15 PSBs 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,” it said, and added the remaining three PSBs will also be introducing such products by 1 October. Sitharaman also said to support decision-making and to prevent harassment for genuine commercial decisions by bankers, the Central Vigilance Commission (CVC) has issued certain directions. As per the directions, internal advisory committee in banks would classify cases as vigilance and non-vigilance along with setting up of an advisory board for 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.