Being a public sector banker always has its challenges, as they are subject to rules of their owner, the government, unlike private banks which have substantial autonomy.

Anyone who lived in the 1970s-80s will recollect the ‘loan melas ’ that were held post nationalisation of banks, where the objective was to ensure that everyone who wanted a loan would get it. It had created some controversy then, and it seems to be retro time today. The decision to hold such shamianas in 400 districts immediately to disburse loans to people in the ‘RAM’ category — retail, agriculture and MSMEs — has an uncanny resemblance with the old story. The immediacy is that this is the festival season, when demand for loans increases and should be addressed by banks and NBFCs. Banks should hence be pushing for such loans.

Added pressure

The difference however is that while five decades ago, this was more of a political ploy to win votes; but this time, it is an honest effort to resuscitate the SME sector, which has been through stressful times following demonetisation and GST implementation. This measure is also supposed to provide a boost to retail lending and auto and consumer durable loans are supposed to increase on this score, as these goods are typically bought in the coming months, which coincide with the festivals and harvest. Besides, this can be viewed as one of the several measures taken by the government to provide an impetus to the economy as the flow of credit appeared to be a cog in the wheel.

Coming at this time, it is a challenge, because making such arrangements and meeting targets involves a lot of executive time. The banking sector is presently dealing with NPAs, NBFC financing, bank mergers, low growth in credit due to demand conditions, etc. Now with additional pressure to have such credit monitored is a task. It has been stated that banks have to get five new customers for every one old customer, a task would require a lot of effort and hence will preoccupy all concerned branches of PSBs in these identified 400 districts. Will this become another of the sale of credit card episode, where a banking executive accosts a passenger in the airport and almost forces a card on him?

NPA numbers

Curiously, at a time when the NPA issue has come a full circle, the approach has been similar to what was done for the large assets in the infra space, called ‘restructured’ assets. From now on, bankers connot call the stressed assets of MSMEs NPAs till March 2020. This is a relief for the MSMEs, which get breathing time for the next six months or so, but banks have to work towards restructuring these loans so that post March 2020, they officially become performing assets. This was done under the corporate debt restructuring programme too, where larger assets which became impaired due to defective policies were not called NPAs. Hopefully this would be a one-time exercise, because if the same is rolled over for another year, it can become a habit. Therefore, the NPA numbers that would be revealed in March 2020 would not include these loans, and would hence be an understatement to an extent.

The third challenge for bankers is the OTS — one time settlement scheme — which was announced. For small-size loans, bankers can settle with the borrowers. While the score sheet would be the basis of going for such deals, the government has assured that there would be no future investigations, as this is an objective criteria used. The third challenge for bankers is the OTS — one time settlement scheme — which was announced. For small-size loans, bankers can settle with the borrowers. While the score sheet would be the basis of going for such deals, the government has assured that there would be no future investigations.

This is assuring, but the broader question is whether our banking culture is getting diluted. Often, farm loan waivers are announced; now, SMEs have entered the potential group of defaulters, as there is incentive not to repay loans in expectations of defaults being forgiven.

In fact, the so-called loan melas run the same risk of loans being forced on customers to meet targets which can then become an impaired asset, especially if the borrower knows that there can be an escape route in future. This is a serious issue for PSBs, because while there are serious talks of making these banks stronger and resilient with capital infusion, mergers, change in governance structures etc, the main business activity seems to get compromised often when the some section of the economy goes under. This not only affects the credit standards that are followed but also the intrinsic value of the business. One may hope that this would be a time-bound exercise with no renewal.

The writer is Chief Economist, CARE Ratings. Views are personal

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