The loan melas, as the term goes indulge in politically induced and interfered lending by banks, which only result in bad loans and a build-up of NPAs in the future.
With the monetary policy strategy of successive interest rate cuts by the Reserve Bank failing to revive the sagging growth of India’s economy, the desperate government has now thrown fiscal discipline to the winds, as its next strategy to combat the slowdown. The government has thus cut corporate taxes, it says that it will not prune the budgeted expenditure and has also announced a loan mela, a major move that got lost in the loud uproar for its corporate tax rate cuts. The government is thus betting that due to the combined effect of all these relief measures and pump-priming, the languishing economy will resume its growth trajectory.
Despite the objections of reluctant bankers, the Finance Minister has announced a liberal loan mela, for the liquidity starved MSME sector. With no time for preparation, banks have been ordered to hold festive loan melas under shamianas in 400 districts, of which they will be held in 200 districts during September 24-29 and then in the balance 200 districts during October 10-15. The purpose of these loan melas according to the FM is to ensure that liquidity reaches the ground level, such that funds are made available to all those who are seeking it for the upcoming festival season. The purpose is to target the 65 mn MSME enterprises, who employ 120 mn persons, with the FM directing bankers to get five additional borrowers for each customer that they have at present. And for this banks have been directed to work in tandem with the local NBFC of the area and these loan melas will also involve the local MPs so that there is a wider distribution of new loans.
In addition to fresh loans being doled out under festive tents, the FM has also directed banks to not mark MSME loans as NPA till 31.3.2020 and thus condone payment defaults and take no recovery action till then.
The government has been seeking to liberally dole out loans to the MSME sector, reeling under the after-effects of demonetization and GST and a worrisome slowdown in consumer demand, but there has been little improvement in the state of affairs of the MSME sector. With the 59 minutes loans under which over Rs.45000 crores have been disbursed so far, as also the recent surge in repo linked loans, wherein Rs.40000 crores are said to have been disbursed, and the securitization of NBFC loans targeted at Rs.50000 crores not yielding a growth result, the government has now announced the loans melas.
The loan melas, as the term goes indulge in politically induced and interfered lending by banks, which only result in bad loans and a build-up of NPA in the future. In its desperation to pump prime the economy, the government has resorted to the most reckless option of loans meals, not just showing that political interference in bank functioning continues unabated, there is nothing called banking reforms and that the government has an infinite appetite for NPA, irrespective of its political ideologies/affiliations.