According to the industry sources and documents as seen by Reuters, the Indian government is planning to boost lending loans in a bid to strengthen the country’s economy, which had been already affected severely by the coronavirus outbreak.
The source said that the government has made serious efforts to push state-run banks to boost lending and has demanded that lenders should submit a daily report detailing the volume and scale of loans sanctioned.
Increasing Banks’ Loans
The Indian finance ministry, in a letter dated April 17 and seen by Reuters, asked its banks to increase lending loans to investors, financial groups, or individuals and provide detailed information on these loans including particulars on the sectors the loans were channelized. The decision of the government was taken after the introduction of a 75 basis point rate cut policy by the Reserve Bank of India (RBI).
The Indian economy had been hit hard and tens of millions of jobs were in trouble due to the virus forced 40 days national lockdown in the country to contain the spread of the COVID-19, a highly contagious disease caused by the respiratory from the infected patients. At these miserable times, the government wanted to make sure the banking system to be flush with liquidity pumped in by the RBI to ensure new lending and prevent declining growth.
Some bankers, who refused to identify as they were not authorized to discuss the matter publicly, said that the banking system of India had been already facing nearly $140 billion in bad debt and the government must involve in restructuring it before banks can really start lending.
Bankers’ Reluctance to New Policy
Some of the bankers explained that certain state-backed banks have laid down their frameworks and set branch-wise targets of lending new loans following the policy of new financial measures of the government. It was reported that branch managers of banks were strictly instructed to submit reports about the loans and had to explain if failed to meet their targets.
However, several senior banking executives suggested that the banks were reluctant to the new loan policy of the government amid fears of higher default rates with businesses and jobs at risk. One of the bankers said that the government, however, has not given lenders any targets yet, adding it remained a commercial decision.
Apart from the shrinking of the economy due to the virus impact, the growth of banks’ loans in the last financial year was at a record low in 58 years despite the enormous efforts by the government to boost credit lending. A senior executive of a public sector bank stated, “The whole business of giving loans is based on money coming back so if there are concerns which are across the board now how can the banks lend?”
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