Finance minister Nirmala Sitharaman on Tuesday asked public-sector banks (PSBs) to get back to the business of lending with a personal touch at the branch level and also ensure that small and medium businesses are not starved of liquidity. Sitharaman's statement comes after the non-food credit growth plunged to an over three-year low of 7.1% year-on-year in the second fortnight of January, even though the liquidity surplus was in excess of Rs 2 lakh crore.
Stressing that bankers need not fear, as none other than Prime Minister Narendra Modi had reassured them of protection for honest business mistakes, the minister also expected them to not restrict lending when they could improve credit flow by extending loans to eligible customers. She cited the example of last year's outreach programme (directed by the finance ministry) - under which PSBs disbursed a record `4.91 lakh crore of loans during October and November - and hoped that bankers would replicate such efforts to boost lending.
Sitharaman was speaking to media after holding meetings with chiefs of PSBs. She reviewed loan flow to MSMEs in one of the meetings, which was also attended by transport and MSME minister Nitin Gadkari.
As many as 5.28 lakh MSME accounts, which were witnessing stress but were still standard, have been restructured since January 2019 under an RBI scheme, which has been extended by one year through March 2021 to help such businesses. The central bank in January last year allowed this one-time restructuring of existing loans to support MSMEs that have been hit by the double whammy of the demonetisation and the goods and services tax regime.
The minister exhorted PSBs not to rely only on the data from rating agencies while assessing a customer's profile before extending loans. Instead, there should be a judicious mix of data with personal connect with customers, which will enable the bankers to make appropriate decisions.
Asked about the impact of coronavirus outbreak in China, the minister said the government was keeping a close watch and approapriate steps would continue to be taken.
The minister also said that the process of merger of PSBs was underway as per the schedule. The government has announced to merge 10 state-run banks to create four bigger lenders.
Commenting on mergers of PSBs, Sitharaman said there is "no uncertainty about bank merger" and the process is on as per the schedule.
The government had in August last year announced the amalgamation of ten PSBs to create four larger lenders with greater balance sheets and strength to fund the credit appetite of the economy. This was widely expected to be operational from April 1, 2020.
Oriental Bank of Commerce and United Bank would be merged into Punjab National Bank (PNB) to create the country's largest state-run bank after SBI, with a total business of close to Rs 18 lakh crore.
Similarly, Syndicate Bank is to be amalgamated with Canara Bank, and the broader entity will be the fourth-largest PSB. Union Bank, Andhra Bank and Corporation Bank will be merged and emerge as the fifth-largest state-run bank. Also, the amalgamation of Indian Bank and Allahabad Bank will create the 7th biggest PSB. Boards of all these PSBs have already approved the merger and a final scheme, with details of the amalgamation, will soon come before the Cabinet.
Coupled with the two sets of consolidations done in 2018, the latest merger decision will reduce the number of PSBs to 12 from 27 in 2017.