Listen up, folks! Indian banks are now ready to do business with ordinary folk and are a bit leery of the big ticket investors. The ‘loan mela’ days are back again.
The first phase of ‘Loan Mela’, an outreach programme for providing credit to retail customers and MSMEs, will begin from Thursday across 250 districts across the country to meet demand during the festival period.
However, with stagnant incomes and increasing lay-offs and the future of many more jobs hanging in balance, the banks are likely to find it hard to get potential customers while at the same time running a higher risk of the retail loans – albeit much smaller as compared to corporate loans – turning bad.
During the four days beginning October 3, loans will be sanctioned for retail, agriculture, vehicle, home, MSME, education and personal categories on the spot.
All banks, including State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB), and Corporation Bank have geared themselves up to take advantage of festival season demand.
SBI is the lead banker in 48 districts across the country. Likewise, BoB is the lead banker in 17 out of 250 districts in the first phase.
BoB is holding ‘Baroda Kisan Pakhwada’ when its branches will focus on promoting farm loans, BoB said in a statement.
During the annual performance review earlier this month, public sector banks decided to undertake outreach exercise in 400 identified districts. Later, the private sector too expressed their willingness to join the initiative.
That the banks are averse to giving huge corporate loans can be understood from the fact that the non-performing assets (NPAs), or the bad loans, amounted to ₹10.3 trillion (11.2 per cent of advances) in March 2018.
Especially hit are the public sector banks (PSBs) which account for around 86 per cent of the total bad loans.
The banks have been pushing retail credit for the past few years now as in the face of surge in defaults in corporate loans, the banks have retail loans as the last resort to show growth.
The lure for retail lending is that it is high yielding and relatively safer as individuals work overtime to avoid default, partly for their reputation in the society and partly because of the fear of sliding in the credit score that would make future loans very hard to get if not impossible. The middle class, the primary consumer of the retail loans, can hardly afford to lose their credit credibility.
Mortgages, auto loans, loans for durables and personal loans for pleasure trips abroad have gained popularity over the last 4-5 years.
Already, huge profitability of retail lending have led to crowding of the segment and dilution of standards of underwriting in order to capture business.
The other target of the banks’ outreach programme, the MSMEs (micro, small and medium enterprises), apparently still reeling under the impact of demonetisation of 2016 and the suddenly imposed GST, have not been too well either as there is lack of demand.
The GDP showed its slowest growth in the last quarter of fiscal 2019 in the past five years.
“The outreach camps will provide a one-stop destination for MSMEs, small retail businesses and end customers to access all bank services, especially loans in auto, home, personal and business section,” an official statement said.
“While at one level it will help businesses to gear up for the festive season, it will also provide ready cash in the hands of consumers. All prudent financial norms and due diligence will be followed by PSBs while disbursing loans,” a top official of the public sector bank said.
For spreading information, the banker said, local vendor associations, commercial organizations and chambers of commerce may also be engaged to spread the message among merchants and customers.
The second phase will be in 150 districts and will be held between October 21 and October 25, just ahead of Diwali.