Bank burden – the Hindu BusinessLine

The Centre’s credit surge towards the economy with an eye on the informal sector did not come too late. It is a tacit recognition that large swathes of the working class have been affected by the second wave of the pandemic and may need additional support beyond food and cash transfers. With obvious limits to budget support in a situation of creeping inflation and rising global rates, it is only fair that the Center resort to credit-based relief. The effectiveness of these measures, however, will be determined by the banks. Besides creating a health infrastructure of 50,000 crore through loan guarantees, the rest of the economy will be supported by another ₹ 60,000 crore in guarantees. The limit of the emergency credit guarantee program has been increased to ₹ 4.5 lakh crore, from ₹ 3 lakh crore, giving banks additional leeway to disburse credit. Contact-intensive sectors in urban areas cannot be easily supported by fiscal transfers; therefore, a line of liquidity to help them survive makes sense.

The new credit guarantee scheme for microfinance institutions (MFIs) appears to be aimed at reaching borrowers who have been excluded from ECLGS. It provides commercial banks with credit guarantees of 7,500 crore to open their credit taps to microfinance institutions, which in turn are expected to disburse low-cost loans to 25 lakh borrowers. The MFI space is better regulated than ten years ago and is aimed at the right target segments. But since credit goes through two levels of intermediaries – banks and MFIs – it is necessary to see whether it reaches the ultimate beneficiaries. In its efforts to reach the unbanked, the banking system should consider promoting a credit or overdraft card model popular in organized retail and industrial sectors that allows for capital turnover. The current insistence on full repayment may force chapters with uncertain income streams to fall back on informal lenders. Regarding ECLGS, there is some evidence that the bulk of the loans already disbursed may have gone more to medium or large enterprises, rather than micro enterprises. A recent survey by the Consortium of Indian Associations covering 81,000 small businesses found that 88% of them had so far not benefited from the stimulus, either because they found the banks’ procedural requirements too intimidating or that banks preferred borrowers who used it to settle old dues.

In its omnibus package, the Center did well to extend its EPFO ​​grant until the end of this fiscal year. This will deter layoffs. The focus on preserving jobs in sectors affected by Covid, seen by support measures for tour guides and hotels, and an effort of targeted interventions is a notable feature of Monday’s announcement. However, banks need to get rid of their risk aversion. The RBI has given them, through the TLTRO window, a medium-term surplus of funds and they need to get up to speed.


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