FM asks banks to step up credit flow, reduce bad loans

Jaitley assured banks that their professional decisions would not be influenced by instructions from the Centre and asked them to act without any fear or favour

Finance Minister Arun Jaitley on Thursday asked the chiefs of public sector banks (PSBs) to increase the flow of credit to various sectors of the economy without being unduly conservative and firmly deal with the issue of rising non-performing assets (NPAs). He assured banks that their professional decisions would not be influenced by instructions from the Centre and asked them to act without any fear or favour.

According to a statement of the finance ministry, at a review meeting with PSB heads, Jaitley said, in the second quarter, the growth was going to pick up as a large number of projects are queuing up for credit.

“There is a great opportunity for India to attract foreign investment and a large number of international entrepreneurs are showing their keen interest in India,” the finance minister stated, adding global growth was quite patchy and the direction of global investment was still unclear.

Banks, however, said the credit growth was subdued due to lack of demand. They also told the finance ministry that a lot of projects were stalled due to lack of clearances at various levels.

“The finance minister wanted to know whether we are not lending because of NPAs. But it is due to various other factors,” said a chairman of a state-owned bank.

RBI data show five sub-sectors — infrastructure, iron and steel, textiles, mining (including coal) and aviation services — contribute significantly to the level of stressed advances.

“Over the last two-three years, on account of slowdown, one area of concern is that the NPA has risen. Therefore, steps to be taken to ensure NPAs come down have been discussed,” Jaitley told reporters.

Stressing that functioning of PSBs and the decision-making process must be influenced by professional reasons and not collateral ones, he said the government has taken steps to streamline the process of appointment of CMDs of PSBs to introduce objectivity in the process.

Financial Services Secretary Hasmukh Adhia also assured bankers that there would be no interference in the day to day internal functioning of the banks. He asked CMDs to evolve a rational transfer and posting policy so that there is no grouse among the officers and staff in this regard.

Adhia stressed the need to encourage solar/non-conventional energy with grid connection, as done in 13 states. Financing of such capacity as part of housing loans needs to be considered, he added.

Though there was no discussion on interest rates in the meeting ahead of the bi-monthly Monetary Policy review by the RBI on December 2, State Bank of India Chairman Arundhati Bhattacharya said all the parameters were indicating that there would be further fall in inflation.

“Between November and January with the base effect it might go up a little bit. But by March, it will be well below whatever the glide path that is indicated by the RBI,” she told reporters, indicating rate cut might not be possible in the next review. “The RBI governor has indicated that he will be data-driven.”

RBI has set a target of retail inflation of 8 per cent by January 2015 and 6 per cent by January 2016. Consumer Price Index-based inflation eased to 5.52 per cent at October-end mainly on account of base effect, which might not be the case in the coming months.

Bhatttacharya added the issue of 74 per cent of Jan Dhan accounts remaining dormant was discussed during the meeting. She said the issue would be resolved as and when the Direct Benefits Transfer scheme rolls out and the Jan Dhan programme is stepped up.