Finance Ministry plans to ask banks to expand lending to boost demand

Even as most of the lenders see an increase in bad loans, Centre is planning to ask PSU banks to reach out to every district to expand lending in order to boost demand in the economy.

Government is planning to ask state-run banks to reach out to every district to expand lending to boost demand in the economy, Finance Minister Nirmala Sitharaman said, a move that comes at a time when most lenders are already seeing an increase in bad loans.

A similar exercise was undertaken in 2019-20 when the government ordered state-run banks to hold more than 400 loan fairs to spur growth that had started showing signs of weakness even before COVID-19 hit the country.

"There will be a credit outreach even this year in every district of the country," Ms. Sitharaman said in a press conference on Wednesday.

The Finance Ministry has taken various measures to help revive the economy after two devastating waves of coronavirus infections that have led to a record economic contraction.

"In order to keep the momentum of the stimulus that we have given, we have also asked the banks to go out and give to those that want to borrow from them," the Finance Minister said.

However, such a move could pile more stress on lenders. Domestic banks have struggled to contain bad loans, especially in their retail portfolios, as the pandemic and resultant lockdowns hit economic activity and limited borrowers’ ability to repay debt.

The country’s largest lender State Bank of India posted a four-fold jump in slippages, or new bad loans, for the first quarter, ending in June, as its home loan and small business segments struggled.

Lenders have not only witnessed higher level of defaults in unsecured credit such as credit card and personal loans but also in far more insulated segments such as housing loans.

Revenue Secretary Tarun Bajaj told at the same press conference that the government could announce rules allowing companies to list overseas in the next budget in February.

Centre is expected to take around six months to announce rules allowing companies to list overseas – taking longer than some expected as the Finance Ministry irons out issues related to taxation.

"To make it (overseas listing rules) a success, there would be requirements of some amendments to legislation to ensure there is smooth trading of these outside the territory of India," Mr. Bajaj said.

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