Prime Minister Narendra Modi last week met stakeholders of banks and NBFCs and discussed issues relating to the economy, including those in the financial sector, particularly credit growth and risk aversion. He emphasised that the Government is firmly behind the banking system. The comment came on the heels of the release of the Financial Stability Report by the RBI, which raised concern over heightened risk aversion by both public and private sector banks, pulling the overall credit growth rate in March.

In his interaction, the PM not only reviewed the progress of schemes like emergency credit line for MSME, additional KCC cards, liquidity window for NBFC and MFI, but he also emphasised on some practical aspects at the grassroots level, such as not treating all proposals with the same yardstick, need to distinguish and identify bankable proposals, and to ensure that MSMEs don't suffer in the name of past NPAs. It is worth mentioning here that while the ECLGS is a welcome scheme, at ground level MSMEs are facing some troubles, and banks should not turn a blind eye to these issues.

According to reports, banks, in the meeting, demanded more recap fund, and later reacting to the development, the Finance Minister added that the proposal of one time loan restructuring of loans is under consideration, and discussions are going on with the RBI. She also noted the requirement of extension of the moratorium or a restructuring for the hospitality sector. Of late, several industry bodies have sought a one-time restructuring of loans in the wake of the COVID-19 pandemic. It would be interesting to see how the government responds in this regard.

Meanwhile, the Finance Minister also admitted that it would be difficult to get a complete picture of the economy at this point of time. According to several rating agencies, the Indian economy may contract sharply in the coming quarters. Also, latest figures show that fiscal deficit for the April-June 2020-21 period stood at 83.2 percent of the budget estimates. These data sets are no encouraging, but the minister rightly said that we have a few months left when things may change to positive.

I invite your opinions.