Business Economy 25 Jan 2019 FM may propose more ...

FM may propose more loans to farmers, SMEs

DECCAN CHRONICLE.
Published Jan 25, 2019, 2:11 am IST
Updated Jan 25, 2019, 2:11 am IST
Some announcements to support a steady and seamless flow of credit to NBFCs and housing finance companies are also expected in the Budget.
However, a large portion of this capital is expected to be utilized against loss provisions, thereby leaving limited capital for supporting credit growth.
 However, a large portion of this capital is expected to be utilized against loss provisions, thereby leaving limited capital for supporting credit growth.

Mumbai: With just few months left for the Lok Sabha polls, rating agency ICRA said the forthcoming union budget is likely to propose measures to increase credit to agriculture and small and medium enterprises.

It believes that the target for institutional credit to agriculture sector is likely to get enhanced to over Rs 12 lakh crore from Rs 11 lakh crore for FY2018-19.

 

Further, to increase the credit supply to the medium, small and micro enterprises (MSMEs), the refinancing target by Micro Units Development and Refinance Agency (Mudra) Bank is also expected to increase to over Rs 4 lakh crore from Rs 3 lakh crore for FY2018-19.

Considering the current tight liquidity situation, some announcements to support a steady and seamless flow of credit to non-banking finance companies (NBFCs) and housing finance companies (HFC’s) are also expected.

These, according to the rating agency, may include increase in the refinance to the sector, a priority sector tag for bank credit to NBFCs based on their on-lending and relaxation in risk weights for capital allocation by banks on their exposures to the sector.

“Any large-scale debt relief for small borrowers in agriculture or MSME sector will lead to higher cost of borrowings and adversely impact the profitability of banks unless the scale of such waivers is contained by targeting the borrowers under genuine stress,” said Anil Gupta, vice-president and sector head, financial sector ratings, ICRA.

The government has recently upsized the recapitalisation package by Rs 41,000 crore for public sector banks (PSBs) to Rs 1.06 lakh crore for FY2019.

However, a large portion of this capital is expected to be utilized against loss provisions, thereby leaving limited capital for supporting credit growth.

“We expect the capital requirements for PSBs to remain sizeable at over Rs 50,000 crore  during FY2020 to support 10 per cent credit growth, but the budgetary allocation is expected to be lower than requirement on the back of expectations that PSBs may be able to raise some capital from the markets as earnings profile shows signs of improvement,” he added.

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