For the first time, state-owned banks have registered a credit growth lower than their private sector peers. While public sector bank’s gross advances increased by a mere 4% from Rs 49.17 lakh crore as on March 2015 to Rs 51.16 lakh crore by the end of March 2016, the growth was 25% for the private banks.
Finance minister Arun Jaitley has asked banks to immediately increase the lending process, a move expected to boost the economy.
With a surge in the level of the non-performing assets (NPAs) -- loans that do not yield returns -- banks have been mostly concentrating on recovery and issues related to provisioning. Besides, the demand for loans from the companies has also remained weak. The cumulative loss posted by the state-owned banks is Rs 18,000 crore on account of provisioning of NPAs.
“Banks are scared to lend... in case anything goes wrong, the scanner will be on,” said a government bank chief who did not wish to be identified. “NPAs have increased for public sector banks. Thus, reducing bad loans plus other management issues has taken the maximum attention… Banks have also become reluctant in sanctioning big-ticket loans.”
A weak monsoon for two consecutive years has added to the erosion of demand for loans. The silver lining has been a healthy growth in disbursement of loans under the Mudra scheme and other government programmes such as Stand Up India and Start Up India. “However, the loan sizes of these are small and until demand from the companies revive, banks will find it difficult to register healthy credit growth,” another senior bank executive said.
Meanwhile, Jaitley, who held a review meeting with the chiefs of PSB on Monday, assured them full support and protection in all cases, which are driven purely on the basis of commercial decisions.
Gross NPAs increased from Rs 2.67 lakh crore -- 5.43% of gross advances in March 2015 to Rs 4.76 crore, which is 9.32% at the end of March 2016.