Lok Sabha Question No. 1056 (UNSTARRED), answered on 2021-07-26
Subject: Lending Capacity of Banks
Ministry: FINANCE
Asked by: Pushpendra Singh Chandel

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF FINANCIAL SERVICES

## LOK SABHA

## UNSTARRED QUESTION NO. †1056

TO BE ANSWERED ON THE 26 TH  JULY 2021/ SRAVANA 4, 1943 (SAKA)

## Lending Capacity of Banks

## †1056. SHRI KUNWAR PUSHPENDRA SINGH CHANDEL:

Will the Minister of FINANCE be pleased to state:

- (a) whether the credit lending capacity of banks has been affected during the recent past, if so, the details thereof;
- (b) whether  the  Government  has  issued  guidelines  for  banks  to  disburse  loan  at  very affordable rates but banks are unable to disburse loans as expected;

(c) if  so,  whether  the  Government  is  contemplating  to  bring  change  in  the  credit  lending policy and to extend financial assistance to the banks; and

- (d) if so, the details thereof?

## ANSWER

## THE MINISTER OF STATE FOR FINANCE (DR. BHAGWAT KARAD)

(a)  to  (c):  Despite  contraction  in  GDP  (-7.3%)  during  FY  2020-21  due  to  the  COVID-19 pandemic, overall credit growth of Scheduled Commercial Banks (SCBs) has remained positive for  FY  2020-21.  As  per  RBI's,  'Gross  Loans  and  Advances  -  Outstanding'  of  SCBs,  have increased from Rs. 109.19 lakh crore as on 31.3.2020 to Rs. 113.99 lakh crore as on 31.3.2021. Further, as per RBI data of loans to Agriculture and allied activities, Micro, Small & Medium enterprises, housing and vehicle have witnessed a year-on-year growth of 12.3%, 8.5%, 9.1% and 9.5% respectively during the year. Ability of Public Sector Banks (PSBs) to further increase lending  is  evident  through  Capital  to  Risk  Weighted  Assets  Ratio  of  PSBs  which  stood  at 14.04% as on 31.3.2021, as against regulatory requirement of 10.875%.

In addition, with a view to sustain the flow of credit to various sectors of the economy in the wake  of  COVID-19,  the  Government  and  RBI  have  taken  several  monetary  and  liquidity measures which, inter alia, included the following:

- (i) Government  announced  a  three-month  extension  of  its  Rs  3  lakh  crore  Emergency Credit  Line  Guarantee  Scheme to 30.9.2021, from 30.6.2021, or till  guarantees  for  an amount of Rs 3 lakh crore are issued. Also, a 100% guarantee cover is provided to loans up to Rs 2 crore to hospitals, nursing homes, clinics, medical colleges for setting up onsite oxygen generation plants with the interest rate capped at 7.5%. Banks and NBFCs have  sanctioned  loans  amounting  to  Rs.  2.77  lakh  crore  under  this  scheme  as  on 20.7.2021.
- (ii) To  incentivise  new  credit  flow  to  the  micro,  small,  and  medium  enterprise  (MSME) borrowers, SCBs were allowed to deduct credit disbursed to 'New MSME borrowers' from their net demand and time liabilities (NDTL) for calculation of Cash Reserve Ratio (CRR). This exemption is available till 31.12.2021.
- (iii) Reduction  of  115  basis  points  (bps)  in  policy  repo  rate  reducing  interest  burden  on borrowings  and  a  155  bps  reduction  in  reverse-repo  rate  to  induce  banks  to  on-lend surplus funds to productive sectors of the economy.
- (iv) Reduction in CRR by 100 bps releasing primary liquidity of around Rs.1.37 lakh crore, uniformly across the banking sector.
- (v) Expansion in banks' limit for borrowing overnight under the marginal standing facility from 2% of NDTL to 3%.
- (vi) Term liquidity facility of Rs. 50,000 crore to ease access to Emergency Health Services.
- (vii) Special refinance facilities for a total amount of Rs. 1,41,000 crore at the policy repo rate to the National Bank for Agriculture and Rural Development, the Small Industries Development  Bank  of  India  ,  the  National  Housing  Bank  (NHB)  and  the  ExportImport Bank of India (EXIM Bank) to meet sectoral credit needs.
- (viii) RBI announced on tap Targeted Long Term Repo Operation for a total amount of up to Rs. 1,00,000 crore at a floating rate linked to the policy repo rate.
- (ix) Special  Long-Term  Repo  Operations  of  Rs.  10,000  crore  for  Small  Finance  Banks (SFBs).
- (x) On-tap Liquidity Window of Rs.15,000 crore for Contact-intensive Sectors.

Further,  as  per  RBI,  the  loan  policy  of  banks  are  required  to  lay  down  exposure  limits  to individual/  group  borrowers,  documentation  standards,  margin,  security,  sectoral  exposure limits, repayment terms, delegation of powers, maturity and pricing policies, factors taken into consideration for deciding interest rates etc. The regulatory guidelines are reviewed based on the  prevailing  conditions  and  feedback  received  from  various  stakeholders  and  appropriate changes in the guidelines are carried out by the RBI as and when it is considered necessary.

***