Money & Banking

RBI officials meet bankers to take stock of credit demand in the economy

Our Bureau Mumbai | Updated on March 02, 2020



The top brass at the Reserve Bank of India (RBI) met bankers on Monday to get feedback on the credit appetite in the economy and the effect of the recently announced measures such as long-term repo operation (LTRO) and the cash reserve ratio (CRR) exemption being offered to banks to incentivise credit to specific sectors.

“The central bank sought our feedback on the LTRO, whereby it is providing longer term (one-year and three-year) funds for improving policy transmission, and whether banks are able to reap the benefits of CRR exemption given when they do fresh lending to retail loans for automobiles, residential housing, and loans to MSMEs. Further, it took stock of the credit demand in the economy,” said a top banker.

As per RBI data, credit offtake of all scheduled banks declined to 6.67 per cent year-on-year (y-o-y) as on February 14, 2020, from 14.26 per cent y-o-y growth recorded as on February 15, 2019. In a recent speech, RBI Governor Shaktikanta Das observed that despite the recent decline in impaired assets and a significant improvement in provisioning, profitability of the banking sector remains fragile. The capital position of banks has, however, improved on account of recapitalisation of PSBs by the government and capital-raising efforts by private sector banks.

Nevertheless, the sector continues to encounter challenges from events such as those around the telecom sector, he added. “Consequently, the overhang of NPAs remains relatively high, which is weighing on credit growth. Also, in view of subdued profitability and deleveraging by certain corporates, risk-averse banks have shifted their focus away from large infrastructure and industrial loans towards retail loans.

“This diversification strategy, while helpful as a risk mitigation tool, has its own limitations. Further, sector specific pockets of stress need policy attention,” said Das.

At the same time, he emphasised that proper due diligence and risk pricing in lending is of prime importance so that the health of the banking sector is not compromised while ensuring adequate flow of credit to the productive sectors of the economy.

Published on March 02, 2020

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