Mixed signals

Two developments are simultaneously unfolding in the banking sector: the Centre and the Reserve Bank are trying to push credit through various measures while going all-out to check lending malpractices. There are feeble indications that credit to industry has picked up. According to a BusinessLine report, loans disbursed by State Bank of India to large industry increased from ₹3.41 lakh crore in 2016-17 to ₹4.11 lakh crore in 2017-18, or by ₹70,000 crore. While this jump should be taken with a pinch of salt, since 2016-17 was the year of demonetisation when credit growth plummeted to a six-decade low of 5 per cent, we could be seeing a turnaround. Gross bank credit was up 10.4 per cent in April, a steady rise since a low of 5.6 per cent credit growth in November 2017. Even if the low base is taken into account, credit growth has improved in subsequent months, save February 2018. In April, the rise in credit was led by 19-21 per cent growth in personal loans and services, which together make up half the stock of loans disbursed which is about ₹80 lakh crore. Lending to industry, which accounts for over a third of loans outstanding, grew by just 1 per cent in April, led however by a 3.6 per cent growth in lending to medium scale industry, an indication that some of the Centre’s exertions are taking effect. Owing to the NPA crisis, the share of banks in credit disbursed to industry has been falling, with non-banking finance companies gaining ground. But such credit comes at a higher cost, affecting MSMEs’ competitiveness. Public sector banks will study the credit requirements of 4,500 companies, largely under consortium lending with borrowings of ₹200-2,000 crore.

However, such initiatives do not sit well with investigating agencies reacting in a knee-jerk manner to loan defaults. The DS Kulkarni scam comes as another shocker, after the likes of Rotomac, with the Pune-based realtor having defaulted on loans of over ₹3,000 crore. However, it is as yet not clear whether it warranted the immediate arrest of the present and former chiefs of the Bank of Maharashtra. BoM was not the lead bank in this case, and has declared Kulkarni a wilful defaulter. Acting swiftly is all very well, but such steps should be even-handed, cutting across situations, rather than arbitrary. Or else, bankers will retreat into a shell, playing safe and refusing to lend altogether.

The RBI should set up a panel to examine the respective roles of key players in any major default, before precipitate measures are taken. The RBI Governor’s view that the central bank should not be on the boards of PSBs as it impacts its regulatory role, is a valid one.

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