NEW DELHI: The Centre wants public sector banks (PSB) to increase their lending to kick-start investment, but at the same time, are cautioning them to undertake strict due diligence since fears persist that in the post- Covid period, bank asset quality is likely to deteriorate. “We want PSU banks to increase lending but only to viable projects with due diligence,” said a senior finance ministry official.
The non-food credit growth rate fell by 40 per cent in September compared to the year ago period. Though PSU banks accounted for about 62 per cent of this credit disbursal, a marked aversion to credit risk has been noticed in banking circles. “There is a need to step up lending to viable projects, especially in sunrise sectors such as electronics, pharma, electric vehicles, solar projects, as well as to sectors such as exports and textiles,” said an official.
The finance ministry plans to inject fresh capital to the tune of `20,000 crore into PSU banks to help them meet capital adequacy norms and to encourage them to increase their loan portfolio. However, fears abound that after the Covid forbearance period- when insolvency proceedings have come to a standstill and banks allowed a one-time restructuring of loans hit by the pandemic-bad loans will rise, with the RBI forecasting an increase to at least 12.5 per cent in 2020-21.
“Bankers are being understandably cautious and despite the urgent need to step up lending, nobody is being asked to blindly recast loans or give fresh loans,” said Sanjay Bhattacharyya, former Managing Director of SBI. Bad loans in the banking system rose from 2.2 per cent in 2007-08 to peak at 11.2 per cent in 2017-18. It stood at 8.5 per cent in 2019-20 after strict corrective actions initiated by the RBI.for the said period, irrespective of whether the borrower fully or partially availed the moratorium. The scheme is also applicable for those who have not availed the moratorium and continued with the original repayment schedule.