Demand is back in the system, Finance Minister Nirmala Sitharaman said on Thursday, expressing hope that it, along with increased lending, would perk up the economy in the second half of the current financial year.
The finance minister’s statement came amid growing concerns about a slowing economy. The economic growth plunged to an over six-year low of 5 per cent in the first quarter.
“Things are looking forward and upward from here, and we hope to take this message across,” Sitharaman said after holding a meeting with top executives of private sector banks, housing finance companies, and micro finance institutions (MFIs). Last week, she had met heads of public sector banks and asked them to go for an outreach programme to step up lending.
None of the bankers in the meeting on Thursday said they faced any liquidity issues. They, however, admitted there were some glitches, such as those related to know-your-customer (KYC) norms and co-origination of loans by non-banking financial companies (NBFCs) and others. They also said there was enough demand for loans, she added.
“On the whole, it was a very tonic-like meeting where I heard good things, positive things," she said, adding that “the message I got is that consumption is happening and there are no liquidity issues".Finance Secretary Rajiv Kumar invited private sector banks to join the outreach programme in 400 districts for potential lending. The first phase of the programme will start in 250 districts from October 3-7, he said. The next phase will begin around Diwali. Maintaining that there was no liquidity issue, Kumar said the outreach programme was being organised to take advantage of the festival season.
“We see a huge opportunity in the outreach programme announced by the government. We feel that this is an opportunity for us to do our dharma,” Kotak Bank Vice Chairman and Managing Director Uday Kotak said.
The finance minister indicated that the economic slowdown seemed to have bottomed out and the coming festive season would help the economy start looking up.
Bandhan Bank CEO Chandra Shekhar Ghosh said demand for credit was comparatively slow in the first two quarters of the year, but might pick up during Durga Puja.
Sitharaman said private sector bankers told her that problems related to commercial vehicles were cyclical and would be over in a couple of quarters. So far as passenger vehicles were concerned, these were largely driven by sentiment and lending to the segment would gather pace in the near future, the FM was told. “If there was a problem in liquidity, it was related to wholesale financing and not retail,” Sitharaman said.
She said affordable housing had really taken off, but some of the bankers demanded that the upper limit for loans in the segment be raised to Rs 50 lakh from Rs 45 lakh.
Sitharaman said MFIs were there in remote areas of the country and they told her there was still demand and that they were growing at 10-20 per cent.
Bankers also told the FM the services sector, which dominates the economy, showed a high appetite for credit. IDFC First Bank CEO V Vaidyanathan said the finance minister gave two hours of patient hearing to the lenders. He said demand was strong at the lower end of the ecosystem and there was “no slowdown at all”.