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Finance minister Nirmala Sitharaman (Photo: PTI)
Finance minister Nirmala Sitharaman (Photo: PTI)

FM Sitharaman gets private lenders on board in growth push

  • Private banks will help enhance credit disbursal during the festive season
  • I have not heard that liquidity is a problem from anybody, Sitharaman said after meeting bankers

New Delhi: Finance minister Nirmala Sitharaman enlisted the support of private banks and non-bank lenders to boost credit disbursal and claimed consumer demand will pick up during the festive season.

Citing bankers, Sitharaman said that lenders and financial institutions are not facing a liquidity crisis.

“I have not heard liquidity as a problem (crisis or shortage) from anybody. That is one thing I would like to take as a message. If anything, more liquidity is reaching them, they see demand waiting and they won’t mind further extending the facility," Sitharaman said on Thursday after meeting top executives of private banks and non-banking financial companies (NBFCs).

The government has been prodding banks to increase credit disbursal ahead of the festive season, seeking to improve consumer demand after announcing a sharp cut in corporate tax rate that is expected to boost profitability of companies and spur private investments. “In the coming half year, things will have to look up and pep up every sector, even in (those) sectors where there may be some stress," she told reporters.

Sitharaman said tepid sales of commercial vehicles are seen as a cyclical problem by bankers.
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Sitharaman said tepid sales of commercial vehicles are seen as a cyclical problem by bankers.

Finance secretary Rajiv Kumar said banks, along with NBFCs, mortgage lenders and microfinance institutions, will hold outreach programmes in 400 districts across the country during the festive season, with a view to enhance credit disbursal.

This comes against the backdrop of GDP growth cooling to a six-year-low of 5% in the June quarter. Private consumption expenditure slowed to an 18-quarter low of 3.1%.

Sitharaman said tepid sales of commercial vehicles are seen as a cyclical problem by bankers. “Private banks and NBFCs feel this problem will get over in the next one or two quarters," she said.

In the case of passenger vehicle sales, it is largely driven by sentiment and the bankers say it will resume in the near future. The current slowdown has impacted automobile sales, among other factors. The passenger vehicle industry suffered its worst-ever monthly sales performance in August. Sales of domestic passenger vehicles plunged 31.6% to 196,524 units from a year earlier, shows data from the Society of Indian Automobile Manufacturers.

Uday Kotak, managing director of Kotak Mahindra Bank, said that private investment will pick up soon as the government had last week announced corporate tax cuts. “With lowering of cost of capital, private investment will respond and banking system will be open to underwriting the appropriate projects."

“We are all committed to benchmark-based lending from October. Most of us are likely to follow repo-based benchmark… It will be transparent," Kotak said.

On Friday, Sitharaman announced that manufacturing companies that are not availing of tax sops can opt for a 22% corporate tax rate, while new manufacturing companies that register and start production between 1 October and March 2023 can avail of an even lower tax rate of 15%. The effective tax rate, including cess and surcharges, for existing companies comes down from 34.94% to 25.17%, while for new companies, it falls from 29.12% to 17.01%.

“On the whole, it was a tonic-like meeting where I have heard a lot of good and positive things. And not one voice said there is a concern, there is a shortfall of demand. To my surprise, more credit for them is possible because none of them voiced liquidity concerns," said Sitharaman.

Asit Ranjan Mishra contributed to this story .

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