Loan 'melas' are back: PSBs to hold credit meets in 400 districts, says FM

The NDA government will be following the footsteps of its predecessor, the UPA, which had introduced the concept of “loan mela” to boost credit by directing banks to lend to people through public meetings.

Illustration: Uttam Ghosh/Rediff.com

Public-sector banks (PSBs) will hold public meetings with borrowers for distributing loans in 400 districts of the country to boost demand ahead of the festive season, Union Finance Minister Nirmala Sitharaman announced on Thursday.

In this, the banks will take help from non-banking financial companies (NBFCs).

The National Democratic Alliance (NDA) government will be following the footsteps of its predecessor, the United Progressive Alliance (UPA) government, which had introduced the concept of “loan mela” to boost credit by directing banks to lend to people through public meetings.

Further, the government has told PSBs not to declare stressed assets of micro, small and medium enterprises (MSMEs) non-performing assets (NPAs) till March 31 next year.

This will come as a major boost to the sector with its 65 million firms employing around 120 million workers - the biggest job creation after the agriculture sector.

The government is also considering a special dispensation for the farm and MSME sectors.

The announcements were made by the finance minister after she held a review meeting with top executives of PSBs here.

Justifying the move, Sitharaman said: “I am looking at more liquidity to be available to those who are seeking it.”

The RBI says there is enough liquidity in the system but we keep hearing that it is not reaching the ground level.

This will ensure that loans will reach people transparently and they do not suffer,”Sitharaman added.

Such public meetings will take place in two phases - during September 24-29 in 200 districts and October 10-15 in another 200 districts in shamiana or ceremonial tents.

Banks have been told to extend all kind of loans, including those for housing and vehicles.

“We are bringing the two parties (banks and NBFCs) together (and saying) to apply existing norms to ensure liquidity to those who are found credit-worthy.

This will enable systems to function and is a different type of approach for credit,” the minister said.

Minister of State for Finance Anurag Thakur will be in charge of the loan mela and Union ministers and MPs will be part of such meetings, she said.

For aiding MSMEs, the banks will avail of the special dispensation given by the RBI circular MSME sector – Restructuring of Advances, dated January 1, 2019.

“I have told banks to invoke the RBI guidelines to ensure stressed assets of MSMEs are not declared NPA till March 31, 2020.

"We have also requested that at the branch level banks should make efforts to sit with such stressed asset accounts of MSMEs to get them out of the situation,” Sitharaman said.

Even if MSMEs are unable to repay loans within 90 days of the due date, their accounts will not be treated as NPAs and banks will not seize their assets and take other action for loan recovery.

However, according to the RBI circular, the aggregate exposure, including non-fund based facilities, of banks and NBFCs to the borrower should not exceed Rs 25 crore as on January 1, 2019.

It should continue to be a standard account as of January 1.

Sitharaman said in such cases the accounts of MSMEs classified as Special Mention Accounts (SMA)-1 or SMA-2 will either continue to remain stressed or be restructured.

SMA-1 are those in which loan repayments have been overdue for a period between 31 and 60 days, while SMA 2 accounts are the ones with a delay of 61-90 days.

None of the PSBs had availed of this dispensation given by the RBI in its circular so far, Finance Secretary Rajiv Kumar said.

Ashvin Parekh, managing partner, Ashvin Parekh Advisory, said: “Under normal circumstances, under the Basel norms, banks have to declare their metrics.

"The fairness and truth of the financial statements will get impaired due to this.”