Finance Minister Nirmala Sitharaman is scheduled to meet heads of public sector banks (PSBs) on August 25 to review financial performance of the lenders and progress made by them to support the economy battered by COVID-19 pandemic.
Given the importance of the banking sector in generating demand and boosting consumption, sources said the meeting with the MD and CEOs of PSBs is considered important.
Recently, the Finance Minister said the government is ready to do everything required to revive and support economic growth hit by the COVID-19 pandemic.
“Growth will be given its importance. Growth will be pushed both by the Reserve Bank and by us…,” she had said.
Interestingly, this would be the first physical review meeting since the outbreak of the pandemic in March last year.
The meeting is expected to take stock of the banking sector, progress on restructuring 2.0 scheme announced by Reserve Bank of India (RBI), sources said, adding that banks may be nudged to push loan growth in productive sectors.
The revamped Rs 4.5 lakh crore Emergency Credit Line Guarantee Scheme (ECLGS) would also be reviewed during the meeting likely to be held in Mumbai, sources said.
Besides, the Finance Minister expected to take a stock of the bad loan or non-performing asset (NPA) situation, and discuss various recovery measures by banks, they said.
As a result of government’s strategy of recognition, resolution, recapitalisation and reforms, NPAs have since declined to Rs 7,39,541 crore on March 31, 2019, Rs 6,78,317 crore on March 31, 2020 and further to Rs 6,16,616 crore as on March 31, 2021 (provisional data).
At the same time comprehensive steps were taken to control and to effect recovery in NPAs, which enabled PSBs to recover Rs 5,01,479 crore over the last six financial years, the government informed Parliament recently.
As far as credit growth of scheduled commercial banks (SCBs) is concerned, it has remained positive for 2020-21 despite contraction in GDP (-7.3 per cent) due to the COVID-19 pandemic.
Gross loans and advances – outstanding of SCBs increased from Rs 109.19 lakh crore as of March 31, 2020 to Rs 113.99 lakh crore as of March 31, 2021. Agriculture and allied activities, micro, small and medium enterprises, housing and auto have witnessed a year-on-year growth of 12.3 per cent, 8.5 per cent, 9.1 per cent and 9.5 per cent, respectively, during the year.
Notwithstanding economic disruptions caused by the pandemic, PSBs have managed to raise a record Rs 58,700 crore from markets in 2020-21 through a mix of debt and equity to enhance capital base.
As a result capital to risk weighted assets ratio rose to 14.04 per cent as of March 31, 2021, as against regulatory requirement of 10.875 per cent boosting the ability of PSBs to further increase lending.
As a result, PSBs in aggregate recorded a profit of Rs 31,816 crore, highest in five years, despite 7.3 per cent contraction in economy in 2020-21.
The primary reason for PSBs to post such a Rs 57,832-crore turnaround from a loss of Rs 26,015 crore in 2019-20 to a combined profit of Rs 31,816 crore was the end of their legacy bad loan problem.