‘Loan Mela’ In 400 Districts
To boost liquidity in the economy, Finance Minister Nirmala Sitharaman today said public sector banks will organise credit “Shamiana meetings” in 400 districts beginning October 3 to provide loans to NBFCs and retail borrowers, including homebuyers and farmers.
“PSBs will focus on giving loans to the ‘RAM’ category retail, agriculture and MSMEs,” Sitharaman said at a press conference after meeting PSU bank heads. She said the idea is to ensure maximum credit disbursal during the festive season.
In this, the banks will take help from non-banking financial companies (NBFCs). Further, the government has told PSBs not to declare stressed assets of micro, small and medium enterprises (MSMEs) non-performing assets (NPAs) till March 31 next year.
This will come as a major boost to the sector with its 65 million firms employing around 120 million workers the biggest job creation after the agriculture sector. The government is also considering a special dispensation for the farm and MSME sectors.
Purpose of the Mela
The idea of popularising cheap credit started in 1972, after Indira Gandhi’s Differential Rate of Interest (DRI) scheme, which made banks allocate at least 1 per cent of loans to farmers and weaker sections of society at highly-subsidised interest rates. The point of the melas was to link villagers directly with banks, to boost rural spending and, thereby, rural consumption.
Also, this was a time when corruption in lending was at its peak, and banks favoured big industrialists. And so, the melas were meant to make lending more transparent, and also to let the poor take advantage of the banks, just as the rich had been doing all along.
The Finance Ministry, in a release, added that banks had already entered into 14 tie-ups with NBFCs for co-originating loans, with another 36 such tie-ups in the pipeline.
Ms. Sitharaman added that no MSME stressed loan would be classified as an NPA until March 31, 2020. “The perception is that the banks have the liquidity and this is not going to the NBFCs and from there to the end customers,” she said at a press conference, following a meeting with the heads of the public sector banks.
- “We have decided that in 200 districts between now and September 29, there will be gatherings organised by banks of the NBFCs they have partnered with,” she added. Another 200 districts will see these gatherings organised between October 10-15.
- The programme, which will be headed by Minister of State for Finance Anurag Thakur, is meant to encourage customers to avail of not just retail, agriculture, and MSME loans, but also loans for vehicles and housing, and Mudra loans.
- “In public, the banks will show that they are pushing liquidity into the system,” Ms. Sitharaman said. The Finance Minister said she has asked banks to try to get five new borrowers for every existing customer availing of a loan.
- “There are several MSMEs that want a one-time settlement of their dues,” Ms. Sitharaman said. “We have instructed the banks to give us the number of such cases between July 1 and September 30.” While there is an existing RBI provision that empowers banks to not classify stressed MSME loans as NPAs even if the 90-day limit is crossed, most banks had not used this provision, she said.
- “We have told the banks that no MSME-stressed loan will be classified as an NPA until March 31, 2020 and the banks will have work with these MSMEs to see how to resolve the stress, even if that means additional credit be given,” Ms. Sitharaman added. The government will also be considering the banks’ request for a special dispensation to be given for farmers and MSMEs. The government release said bank disbursement stood at ₹11.83 lakh crore for the MSME sector in FY 2018-19 compared with ₹8.53 lakh crore in FY 2017-18.
The second half of the day-long meeting with PSBs was supposed to be focussed on merger of 10 PSBs into four announced by Sitharaman last month.
Four general managers, executive directors, and managing directors of each bank, which were supposed to be merged, were called for the meeting. However, the government took stock of the progress made and mainly focussed on the
Measures Related to MSMEs and Loan Mela
- Stressed but standard loans of MSMEs not to be classified as NPAs till March 31, 2020
- Banks to follow RBI’s January 1 circular to ensure that MSME accounts are either restructured or remain in the stressed category
On Credit Boost
- Banks to hold camps to distribute loans, known as loan melas, in 400 districts
- Banks to be accompanied by NBFCs to give out all types of loans
- For every customer, five new borrowers to be given loan by banks
Two things you need to ask yourself as you walk into the ‘loan mela’
Do you need the Loan?
With the increase in availability and access, loans have become an easy alternative to spending out of pocket for many Indians. According to a recent report by CASHe, a digital lending company, in 2018, 23% salaried millennials took short-term personal loans to refinance individual EMIs and 14% borrowed to pay off their loans. But taking on loans for discretionary spending and repaying other loans can be a slippery slope.
Can you service it?
Quick and easy loans becoming available before the festive season can come as a relief, especially in light of the general slowdown and the resultant financial squeeze that many are facing. But taking a loan means you will have to repay it in time, and with the added burden of interest. In fact, the slowdown is even more reason to question if repaying the loan will become a burden.
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