Innovations for proactive flow of bank credit 


While speaking on ‘Creating synergies for seamless credit flow and economic growth’, at the concluding session of a symposium on ‘Build Synergy for Seamless Credit Flow and Economic Growth’, honourable Prime Minister was categorical that banks should move from the role of ‘loan approvers’ to proactively ‘partnering with loan seekers’ to develop base of wealth creating entrepreneurs who can potentially add to employment opportunities and help build a self-reliant country.  

It is noteworthy that due to consistent focus on bank reforms, policy support and timely regulatory interventions, banks could weather the COVID-19 shock better than expected. As per the early trends, the Gross Non-Performing Assets (GNPAs) and Capital Adequacy ratios (CAR) of banks have further improved in September 2021 from their levels in June 2021. Banks have also been prudent in raising capital. Profitability metrics of several banks are also at highest levels in several years. The improved parameters partly reflect regulatory relief provided to banks during COVID-19 as well as fiscal guarantees and financial support given by the Government. 

Thrust on financial inclusion (FI), consolidation and capital infusion in Public Sector Banks (PSBs), formation of National Asset Reconstruction Company Ltd (NARCL) – bad bank designed to quickly resolve bad loans were steps in the right direction.  In its first phase bad debts up to rupees two trillion will be resolved. Debt resolution was further accelerated by improving legal ecosystem suitably amending Insolvency and Bankruptcy code – 2016 from time to time, strengthening debt recovery tribunals (DRTs) and legal reforms. Diplomatic channels were used to get back money from loan defaulters who fled the country. Summing up these measures have aided recovery of bad loans to the tune of up to Rs.5 trillion. Loan recovery process has been strengthened by reinforced policy efforts in multiple ways and it shall continue. 

  • Bank reforms working well: 

 

Thus, many weaknesses of banks have been addressed with continuing reforms and policy interventions. Bank reforms is a journey in perpetuity that is set to continue. It is now up to banks to reorient their internal processes and risk management systems to sustain the improved performance and institutionalize best governance practices to be able to play more proactive and constructive role to accelerate flow of credit.  RBI has now enhanced its focus on bank’s business model to ensure their sustainability. On improved fundamentals, banks are now in a stronger position to raise capital from markets and use it to improve their lending capability. The connectivity of banks with grass root level economy too improved with widespread increase in number of Pradhan Mantri Jan Dhan Yozana (PMJDY) account holders combining the three forces – Jan Dhan, Adhaar, and Mobile (JAM) trinity. 

A formidable FI strength is created as on 10/11/2021 with 43.85 crore PMJDY savings deposit accounts, 31.72 crore debit cards and deposit base of Rs.1.48 trillion, a phenomenal success.  These FI efforts are hailed globally as an effective means to bring about socioeconomic transformation. Some of the studies have also shown that the geographical regions having high density of PMJDY accounts are prone to low crime rates reflecting multidimensional role of FI and its domino impact. 

 

Banks have digital power. Fintechs and other non-banks are joining in discovering power of technology to serve people. With entrepreneurs well integrated with GST and Income tax portals, reliable operational data is available. Banks can well understand the kind of business and turnover of entrepreneurs. The need is to unleash the power of technology by approaching potential borrowers proactively with bank’s offerings encouraging the dynamic business entities to scale up their businesses instead of waiting for borrowers to line up for availing the loans. 

Whenever government drives developmental projects in different geographies, banks should swing into action customizing financial solutions. Banks should work towards educating their customers to go totally digital so that their profiles could be captured on digital mode and more assistance can be given to them. Every bank branch should target converting their minimum 100 customers to go fully digital. Even the road side vendors are assisted by banks through PM SVANidhi scheme. It will herald capturing even their micro data for future use by banks. Digital history is a good tool for banks to plan lending interventions. 

 

Having gained good strength despite Covid19 induced shocks, it is time for banks to come forward to help unlock potential productive capacity of entrepreneurs with greater involvement and proactive support. Using ample liquidity and digital power at its command, banks should work with fintechs in partnership with borrowers to scale up businesses. Big thinking and innovative approach is the need of time instead of reactive approach to think of funding only when the borrower approaches. 

A web-based tracker of funding projects of different ministries will be institutionalized, may be as an extended part of Gati Shakti National Master Plan. It will provide lot of data inputs to support action. Banks should unleash developmental potentiality by engaging right from women’s self-help groups to large corporates in a way that economy should not suffer for want of bank funding. 

This is the most appropriate time for banks to leap frog into higher growth trajectory using digital power. The government is committed to support bonafide credit decisions proactively taken as part of pursuing the goal of Átmanirbhar Bharat Abhiyaan’. Bank’s contribution in economic growth will be critical when we are aspiring to work towards realizing the goals, more importantly during the widely cherished Ázadi Ka Amrit Mahotsav’- realizing the collective aspirations of the nation. It is expected that bank’s role should move much beyond mere financial service providers to proactive architects of creating glorious future of upcoming generations by powering right from micro to mega entrepreneurs.

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Disclaimer

Views expressed above are the author’s own.



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