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Last updated: 15 Oct, 2019  

Rupee.9.Thmb.jpg Credit crunch

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Bikky Khosla | 15 Oct, 2019

Data released by the Reserve Bank of India last week showed that bank credit growth rate slowed to single digit at 8.8 percent to Rs 97.71 lakh crore during the fortnight to September 27. Throughout this fiscal so far, credit growth has been in the low-double-digit and the latest figures clearly reflect the ongoing economic crisis arising from both structural and cyclical issues and a massive fall in consumption demand. This situation needs to be reversed.

Meanwhile, after a review meeting with heads of public-sector banks, the Union Finance Minister on Monday said that public-sector banks have sufficient liquidity. The meeting was held in the background of a RBI report showing a sharp decline of 88 percent in financial flows to the commercial sector during the first six months of the current financial year. The minister added that the second Loan Mela organised by state-owned banks will start ahead of Diwali from 21 October and will continue for the next four days. Good news.

In another positive development, the Finance Minister added that efforts are being made to ensure that large corporates release their dues to micro, small and medium enterprises (MSMEs) ahead of Diwali. According to returns filed by large corporates, as much as Rs 40,000 crore is due to the MSME sector. An official added that the PSBs agreed that since MSMEs suffer the most from shortage of cash they will reach out to these firms to do the bill discounting.

These initiatives have come amid several multilateral institutions, rating firms and brokerages cutting their economic growth forecast for India recently. The World Bank report on Sunday estimated India's growth in the current fiscal at 6 percent, much lower than its April projection of 7.5 percent. Similarly, Moody's Investors Service lowered its 2019-20 growth forecast for India to 5.8 percent from 6.2 percent earlier. In the light of this situation, the aforesaid measures are welcome.

I invite your opinions.

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