Govt. to review if private banks taking part in MSME revival

FinMin, top bankers to discuss credit flow under ECLGS

Updated - June 09, 2020 11:01 pm IST

Published - June 09, 2020 10:22 pm IST - Mumbai

While public sector banks (PSBs) have stared sanctioning loans under the credit guarantee scheme for micro, medium and small enterprises (MSMEs), the government now wants to know if private lenders are also participating in the scheme.

This is because the private sector banks have a significant exposure to MSME credit. With the total loan outstanding to the MSMEs at ₹17.75 lakh crore, India’s largest private lender HDFC Bank’s share is about 13%. The balance is shared between other private lenders, PSBs and NBFCs.

State Bank of India — the country’s largest lender — has a share of about 23% in MSME loans. The issue was discussed during a meeting between top officials of the PSBs and Finance Minister Nirmala Sitharaman. The meeting was convened to review the status of emergency credit line guarantee scheme (ECLGS) and extended partial credit guarantee scheme, according to a communication by the Finance Ministry to the PSBs.

The decision to review performance of private sector lenders in the credit guarantee scheme comes amid tightening of credit norms by these banks in view of the disruptions caused by the pandemic, denting borrowers’ ability to service loans.

“For the ₹3-lakh crore credit guarantee scheme to be successful, the private sector banks should also play an important role,” said a top official from a PSB who attended the meeting.

“SBI has already sanctioned about ₹6,800 crore. But we don’t know how much the private sector banks have sanctioned so far,” official added.

Lending rate

The Finance Minister also indicated that banks need to drop their lending rates to revive economic activity. While the RBI had cut the repo rate by 115 bps since March, banks response to the cut was not proportionate. “She said banks should discuss the issue at the board and take a dispassionate view. Banks need to understand the difficulty faced by the businesses,” the official of another PSB said.

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