FM Sitharaman meets private banks, NBFCs; measures to boost credit may be announced

Finance Minister Nirmala Sitharaman will meet representative of private banks, non-banking finance companies (NBFCs) and housing finance companies (HFCs) on Thursday. Representatives of ICICI Bank, HDFC Bank, Axis Bank, Kotak Mahindra Bank, along with several NBFCs and HFCs, are expected to attend the meeting with the Finance Minister.

Liquidity, credit disbursal, rate cuts are likely to feature on the agenda in the meeting between FM Sitharaman and private banks. Amid a slump in the economy, the government has been trying to improve credit strength of lenders so that they can infuse liquidity in several sectors and boost consumption.

Last week, FM Sitharaman had asked public sector banks to hold open public meetings in 400 districts around the nation. Banks have been asked to approve loans to retail borrowers and NBFCs. Financers who receive liquidity from PSU banks during these loan fairs can also deal with retail borrowers.

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Beginning from October 3, PSU banks will extend loans to borrowers, including MSMEs, farmers and homebuyers in these public meetings. Anurag Thakur, Minister of State in the Finance Ministry, will supervise the initiative that will be conducted in two tranches, covering 200 districts in each leg. During these public meetings, banks have been asked to extend loans to five new customers for every one old customer who wants credit.

Moreover, the Corporate Affairs Ministry is planning to open a special window for NBFCs under the Insolvency and Bankruptcy Code (IBC). The finance companies are not under the ambit of the bankruptcy law, yet.

This move will facilitate some limited actions like insolvency and liquidation proceedings of NBFCs under the IBC. Many NBFCs like IL& FS, DHFL, Altico have defaulted on interest payment to banks. This has spooked the lenders into stopping the credit flow to NBFCs over fears of large scale defaults on existing loans, creating a credit crunch in the sector.

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