PM Modi to meet banks, NBFCs tomorrow to review the financial situation

PM Narendra Modi will meet banks...

Prime Minister Narendra Modi will join banks and non-banking financial companies (NBFCs) tomorrow evening to address the vision and the roadmap for the future, his office tweeted Tuesday.

“The topics on agenda include credit products & efficient models for delivery, financial empowerment through technology, prudential practices for stability and sustainability of the financial sector,” said the Prime Minister’s Office in another tweet.

The meeting assumes importance as credit growth plunged in the midst of the economic downturn triggered by the coronavirus-induced lockdown. With companies shut down for too long, bad loans are likely to rack up.

In its latest Financial Stability Report, the RBI has projected that gross non-performing assets may rise from 8.5 percent to 12.5-14.7 percent by March 2021 depending on the severity of stress in the economy.

The country’s poor loan ratio was already one of the highest in the world’s major economies at 8.5% at the end of March 2020. If the macro-economic environment continues to worsen later this year, the ratio that rise to 14.7% under the severe economic scenario, RBI said in its report.

Currently, a moratorium on loan repayments for companies and individuals provides some relief for distressed companies, but borrowers may consider a flood of loans turning into bad debt after the relief ends in August, the RBI warned.

The top priority right now for all banks and financial firms should be to hike capital levels and improve resilience, the RBI governor said.

As liquidity is reduced in the aftermath of the Covid-19 pandemic, small and medium-sized non-bank financiers are moving extremely slowly on new loans, to a point where it is almost a trickle.

Although a pickup in economic activity has been seen, full recovery remains a major challenge as industries are functioning with lower capacities. Fresh lockdown measures announced by some states due to spurt in coronavirus cases have thrown up new challenges.