Mumbai: Heads of state-run banks met Reserve Bank of India (RBI) governor Shaktikanta Das on Tuesday over the state of liquidity in the banking system, particularly with regard to non-banking financial companies (NBFCs), the chief of a state-owned bank said.
According to the banker, who spoke on condition of anonymity, the conversation with Das was around the five broad themes of liquidity, credit offtake, small and medium businesses, stressed loans and transmission of rates. “This was largely a follow-up of Monday’s meeting with finance minister Nirmala Sitharaman," he said. “It was a review meeting in which the governor wanted to assess the current situation in these five segments."
Even though the banking system has surplus liquidity, banks have turned cautious about lending to NBFCs, leading to payment defaults. According to data compiled by Bloomberg, system liquidity remained largely in deficit mode between October last year and May 2019. The situation has improved since, with a liquidity surplus of ₹2.02 trillion as on 14 October from a deficit of as much as ₹1.7 trillion on 26 December.
The banker cited earlier said the governor also stressed the need for quicker transmission of policy rates since that is required to give economic growth a push. “The governor discussed transmission of repo rate cuts into lower lending rates with regard to the latest cut of 25 basis points," the banker said.
Most banks have linked their retail lending rates to an external benchmark and even lowered the marginal cost of funds-based lending rate (MCLR).
The central bank has cut its key policy rate by 135 basis points in five consecutive rate cuts since the beginning of this year. While four rate cuts have been of 25 basis points each, the central bank resorted to an unconventional 35-basis-point cut in August.
To improve transmission of interest rates, RBI on 4 September asked banks to link their lending rates on floating rate loans given to retail, personal and micro, small and medium enterprises (MSMEs) borrowers to an external benchmark from 1 October.
That apart, there were discussions on debt recast for small businesses facing financial stress.
Interestingly, Sitharaman said last month that the finance ministry has asked banks not to declare stressed assets of MSMEs as non-performing assets (NPAs) till 31 March 2020, invoking existing RBI guidelines.
Mint reported on Monday that Sitharaman said efforts were being made to ensure that large companies release their dues to MSMEs ahead of Diwali.
After a review meeting with heads of public sector banks, Sitharaman said at a press conference that banks had been asked to provide bill discounting facility to MSMEs against payments due from large companies.
According to returns filed by large companies, as much as ₹40,000 crore is due to the MSME sector, Sitharaman said.
Meanwhile, non-food credit growth in the fortnight ended 27 September slowed to as low as 8.7% year-on-year, with the outstanding credit reaching ₹97.11 trillion, central bank data showed. During the comparable fortnight a year ago, non-food credit—or loans to individuals and companies—rose 12.6% to ₹89.3 trillion.
The banking system had last registered single-digit growth of 9.9% in total non-food credit in the fortnight ended 8 December 2017.
Deposits growth also slowed to 9.38% to ₹129.06 trillion for the fortnight ended 27 September.