NEW DELHI/ MUMBAI: Worried over the flow of credit to the corporate sector and small businesses, Prime Minister Narendra Modi will brainstorm with the country’s top bankers on Wednesday.
“The topics on agenda include credit products and efficient models for delivery, financial empowerment through technology, prudential practices for stability and sustainability of the financial sector. Banking sector plays an important role in contributing to India’s economic growth through financing infrastructure, agriculture, local manufacturing, including MSMEs. Financial inclusion can play a big role in financial empowerment through technology,” the Prime Minister’s Office said in a statement.

Those invited for the interaction include Rajnish Kumar, chairman, SBI, Aditya Puri, MD, HDFC Bank, Sandeep Bakhshi, MD, ICICI Bank, S S Mallikarjuna Rao, MD and CEO of Punjab National Bank, and Renu Sud Karnad, MD of HDFC, sources said.
According to economists, one of the key issues facing businesses is the absence of credit growth despite easing by the RBI. “Unlike most major economies, quantitative easing in India has not led to credit-growth acceleration. With bank credit growth already at a six-decade low and a likely contraction of nominal GDP in FY21, credit too may shrink, impacting banks’ net interest income,” said Sujan Hazra, chief economist at Anand Rathi securities.
Unless the liquidity injected by the RBI and credit-enhancing measures (guarantees) extended by the government lead to the acceleration of credit growth, these steps would not aid revival of growth, said Hazra in a note on credit growth.
Bankers made a presentation on their suggestions on what was needed in a meeting with secretary – department of financial services, which was a dry run for their meeting on Wednesday with the Prime Minister. Officials have pointed out that despite the massive amount of liquidity, banks are not lending and are instead parking funds with the RBI.
On their part, public sector banks have blamed the government’s witch hunt against bankers and pointed to instances where cases have been lodged against the entire board by CBI, prompting them to play safe. The government’s move to repeatedly comfort bankers has had little impact in improving their risk appetite.
Even now, they are preferring to be cautious instead of stepping up lending, amid fears of a sharp spike in bad debt in the coming months.