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Informist, Monday, Nov. 18, 2024

 

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--Sitharaman: Banks should focus more on core banking 
--Sitharaman: Bks shouldn't burden customers with insurances they don't need 
--Sitharaman: Banks must target lending INR 7.00 tln to MSMEs in FY27 
--Sitharaman: Banks must target lending INR 6.12 tln to MSMEs in FY26 
--Sitharaman: Collateral-based loans don't always align with needs of MSMEs 
--Sitharaman: Banks need to be more proactive in working with NARCL 
--Sitharaman: Initial results of bks raising funds via GIFT-IFSC encouraging 
--Sitharaman: Bank boards must focus on underserved credit regions 
--CONTEXT: Sitharaman's comments at SBI Banking & Economics Conclave 2024 
--Sitharaman: Bk credit-to-GDP ratio relatively low against global average 
--Sitharaman:Bk loan rates will have to be more affordable to aid pvt invest 
 

 

MUMBAI – Banks need to target lending more to micro, small and medium enterprises, Finance Minister Nirmala Sitharaman said at the 11th SBI Banking and Economics Conclave 2024 on Monday. She said that banks must target lending of INR 6.12 trillion to MSMEs by 2025-26 (Apr-Mar) and INR 7 trillion in FY27.

 

"I have set a target of an additional MSME lending of INR 1.54 trillion in this financial year for the Scheduled Commercial Banks and NBFCs (non-bank finance companies), beyond the estimated INR 4.21 trillion to be lent this year with just business-as-usual approach. So this increase will be sustained in the next two years as well. Banks should target lending INR 1.54 trillion more this year than the usual business-as-usual limit of INR 4.21 trillion," Sithraman said.

 

She also highlighted that banks need to revisit their collateral-based lending model, while catering to micro, small and medium enterprises, as this model might not be serving the actual needs of this segment. 

 

Sitharaman also addressed the need for banks to work closely with National Asset Reconstruction Co. Ltd. "I can very clearly comment that there can be more ambition in banks to offer and for NARCL to be more proactive in getting this work far more efficiently and speedily. This is where I would like the public sector banks to give a bit more time to effectively leverage the advantage NARCL gives us," she said.

 

The finance minister urged banks to focus on the underserved regions in the country and offer financial products. "The share of rural areas, primarily Tier 5 and Tier 6 centres and semi-urban areas, including Tier 2, 3, and 4 centres, in the total credit of scheduled commercial banks is relatively low at 17.7%, as on December 2023. So, the credit flows to these areas, who benefit immensely from the evolving financial innovations," she said. "These are areas which are waiting for banks to come and extend them, but these facilities are yet to move there. So, the government is well aware that the need for financing growth has certain limitations in the domestic market." 

 

Due to this limitation, she said the government has taken a liberal approach and is considering some domestic players to access finance through India's International Financial Services Centre in Gujarat International Finance Tec-City City. "The initial attempt has shown great results. I just want to highlight that with foreign FII (foreign institutional investors) preferring stable offshore locations, GIFT City has emerged as an important centre for mobilising finance. This will further be expanded as well," she said. GIFT City is a special economic zone set up by the government to boost foreign investment in Indian assets. 

 

Sitharaman further said that financial inclusion is about ensuring access to credit and banks need to have digital financial inclusion as one of their goals. She added that banks will have to continuously innovate so that the customer is part of the financial inclusion process. She also emphasised the need for financial literacy to be another focus area for banks.

 

Particularly in the context of banks facilitating the distribution of insurance products, Sitharaman said that while this move has significantly contributed to improving insurance penetration across the country, it has also raised concerns about instances of mis-selling.

 

"So banks will have to look at it with a lot more emphasis on their core banking activities and not burden the customers with insurances they don't require. So banks must prioritise transparency, ethical practices and clear communication strategies for us to earn the trust of the people," she said.

 

Sitharaman said that currently, India has healthy and fit banks who should now chalk their future with confidence. "Even with this resilient picture, I would equally and hastily add, we find that India's bank credit-to-GDP ratio stands relatively low at around 58.7% compared to global averages. This underscores a significant opportunity for financial deepening and credit expansion within the economy, which is awaiting for us to explore," she said. The finance minister added that banks can make their credit lending rates more affordable to aid private investment.  End

 

Reported by Kshipra Petkar

Edited by Tanima Banerjee

 

 

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