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1-min read

Small Banks Told to Give More Loans to People, Fewer to Firms

The corporate loan exposure for a number of PSBs is around 50 percent or higher, while retail exposure is around 15 percent.

Rounak Kumar Gunjan | News18.com@Rounak_T

Updated:January 27, 2018, 11:12 AM IST
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Small Banks Told to Give More Loans to People, Fewer to Firms
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New Delhi: Focusing on reducing the risk of non-performing assets, the Centre has directed small public sector banks (PSBs) to cut their corporate loan exposure over the medium term and focus more on retail lending.

Retail loans include housing, vehicle and car loans, typically exhibiting low level of non-performing assets, while corporate loans have been mainly responsible for the build-up of stressed assets in the banking system.

According to an official, the corporate loan exposure for a number of PSBs is around 50 percent or higher, while retail exposure is around 15 percent.

In a communication to chairpersons and CEOs of PSBs, detailing the government’s reforms agenda, Banking Secretary Rajiv Kumar said smaller PSBs must cut their corporate loan exposure by a minimum of 15 percent by March 2019. Banks have been asked to ensure board-approved policies in place for achieving the loan exposure mix, for which they can pursue asset swaps and sales with the larger banks.

Following the announcement of capital infusion, it has emerged that the government intends to grow larger banks that focus on corporate lending, while weak banks are cut to size and geared towards retail clients.

In the roadmap towards reaching the 25 percent corporate loan exposure mark, the government has asked smaller banks to first cut their corporate loan exposure to either below 40 percent by March 2019 or by at least 15 percent from the September 2017 level.

The government hopes to see some smaller PSBs turn into national retail banks and regional retail banks, limiting the corporate loans business primarily to large banks such as State Bank of India, Punjab National Bank and Bank of Baroda.

Apart from reduction in corporate loan exposure, the government has asked banks to have board-approved policies on monetising their non-core assets, sale of vacant real estate and “exit from all strategic equity investment” in unrelated businesses.

The Ministry Wednesday said that eleven weak banks will be given a total of Rs 52,311 crore to maintain minimum capital requirement even as nine strong banks will get Rs 35,828 crore to pursue growth. The government expects capital infusion to result in additional credit deployment of Rs 5 lakh crore. A total of around Rs 1 lakh crore will be infused in the PSBs by March-end, which comprise Rs 80,000 crore via recapitalisation bonds, Rs 8,139 crore through gross budgetary support and Rs 10,312 crore of funds raised from the market.

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| Edited by: Ananya Chakraborty
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