Public sector banks (PSBs) will become more profitable and proactive in the days to come, Finance Minister Piyush Goyal said after holding a review meeting with the lenders on Monday, days ahead of the interim Budget.
The chiefs of PSBs discussed issues faced in taking bad loan cases to the National Company Law Tribunal (NCLT) along with ways to boost credit, particularly for micro, small and medium enterprises (MSMEs), and improve recovering bad loans.
“The sum and substance of today's meeting is we are going to see a far more vibrant, proactive, profitable banking sector in the days to come,” Goyal said. “We would like them to look at ways to improve delivery of services to farmers. We would like them to be more proactive in encouraging retail businesses.”
Reserve Bank of India (RBI) Governor Shaktikanta Das addressed the chiefs earlier in the day and took stock of the liquidity situation, particularly in non-banking financial companies, said a PSB executive.
Sources said the RBI governor asked banks to make provisions for bad loans. A finance ministry note said Das flagged the need for strengthening various aspects of banking, including underwriting standards, capacity building, using tech, and governance.
“The idea (behind the meeting) was to share with PSB chief executives the regulator's expectations from the banking sector and also to listen to them about their assessment of the state of the banking sector in general and the PSBs in particular and their take on the outlook of PSBs,” Das told reporters.
A PSB chief said the governor was assured there was no liquidity crunch. “The governor told us a line of communication was open between the RBI and banks and all our concerns would be heard. He also told banks to make use of the dispensation given by the RBI on restructuring MSME loans,” a PSB chief executive said.
Earlier this month, the RBI allowed a one-time restructuring scheme for MSMEs with a maximum exposure of Rs 25 crore, to be implemented by banks by March 31, 2020. The MSME account should remain a “standard asset” as of January 1.
The finance minister said discussions centred around support to MSMEs and businesses, along with ways to promote finance for housing and give a thrust to homeowners.
“Bankers expressed confidence that after the government amended the Prevention of Corruption Act while anybody indulging in bad practices will not be spared, (and) genuine commercial decisions by bankers will be protected,” Goyal said. He added the government was “fully backing” every PSB, which would perform better at the earliest.
Punjab National Bank Managing Director (MD) and Chief Executive Officer (CEO) Sunil Mehta said banks were asked whether the process of restructuring MSME loans could be expedited in the current financial year.
“Banks are identifying cases and we are going to provide relief to genuine MSME borrowers in cases where the business model was fine but temporary stress was there,” Mehta said. Mehta said there was an overall review of the Insolvency and Bankruptcy Code framework “and how banks are approaching and resolving the issues. There was a detailed discussion on how we can improve the efficacy of recovery and credit delivery system”, Mehta said.
State Bank of India Chairman Rajnish Kumar said the government was pro-actively addressing issues PSBs raised and the onus was now on bank managements to deliver. He added the RBI governor was receptive of “whatever issues the banks had submitted”.