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Home / Industry / Banking /  PSU banks sanction 5.95 trillion loans from 1 Mar  to  8  May

The Union finance ministry on Tuesday said that public sector banks (PSBs) sanctioned 5.95 trillion in loans to small businesses, retail, agriculture and corporate sectors between 1 March and 8 May.

“PSBs sanctioned loans worth 5.95 trillion for more than 467,400 accounts from the MSME (micro, small and medium enterprises), retail, agriculture and corporate sectors between March 1 and May 8, 2020. Total financing worth 1.18 trillion was provided to NBFCs (non-banking financial companies)," the office of finance minister Nirmala Sitharaman said in a tweet.

The finance ministry had earlier said that the amount of sanctioned loans during the lockdown indicates that the economy is poised for a recovery. However, the numbers do not reflect the disbursed amount.

The disbursal of loans will take place soon after the lockdown is lifted, the ministry had said last week.

“Sanctioning of loans is the first positive step. But it is important to look at the amount that is sanctioned and the utilization of funds over a period of time. One can assume that since loans have been sanctioned, it will be used in the system," said Madan Sabnavis, chief economist, Care Ratings.

Credit growth has been subdued for sometime now. During 2019-20, credit growth was 7.6%, driven by lending to non-banking financial companies and large corporates.

“The covid-19 and the subsequent extended lockdown has adversely impacted business activities of SCBs (scheduled commercial banks) due to weak demand and increased risk aversion. Retail loans may witness marginal contraction in credit offtake as consumer demand moderates due to disruptions caused by covid-19," Care Ratings said in a report last week.

“Between 20 March and 8 May, state-owned banks contacted 97% of borrowers eligible for emergency credit lines and working capital enhancements. Loans worth 65,879 crore were sanctioned, up from the 26,500 crore sanctioned as on 4 May," it added.

State-owned banks such as State Bank of India (SBI) and Bank of Baroda (BoB) have been offering pre-approved emergency credit lines, especially to support small businesses that have been hit the hardest by the covid-19 pandemic and the subsequent lockdown.

These were mostly limited to 10% of the borrowers’ fund-based working capital limit.

A nationwide lockdown, in place since 25 March, has brought economic activity to a near-standstill, hitting businesses.

To help mitigate the impact of the lockdown, the government and the Reserve Bank of India (RBI) have announced a series of measures to improve credit supply over the past few weeks, and support businesses, the middle class and the poor.

On 26 March, the government rolled out a 1.7 trillion relief package under the newly framed Prime Minister Garib Kalyan Yojana.

Experts said the amount was not enough to support economic activity.

There is a growing demand for a 9-10 trillion stimulus worth 4-5% of gross domestic product (GDP) to support growth and employment.

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