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The Union Finance Ministry said Tuesday that public sector banks (PSBs) sanctioned ₹$ 5.95 trillion in loans to small businesses, retailers, agriculture and corporate sectors between March 1 and May 8.
“PSB sanctioned loans for value ₹5.95 trillion for more than 467,400 MSMEs accounts (micro, small and medium-sized companies), retail, agriculture and corporate sectors between March 1 and May 8, 2020. Total value of financing ₹1.18 trillion has been provided to NBFCs (non-bank financial companies), “the office of finance minister Nirmala Sitharaman said in a tweet.
The finance ministry had previously said that the number of loans sanctioned during the shutdown indicates that the economy is poised for a recovery. However, the numbers do not reflect the amount disbursed.
The disbursement of the loans will take place shortly after the blockade is lifted, the ministry said last week.
“The sanction of the loans is the first positive step. But it is important to observe the amount that is penalized and the use of funds over a period of time. It can be assumed that since the loans have been sanctioned, they will be used in the system, “said Madan Sabnavis, chief economist at Care Ratings.
Credit growth has been subdued for some time. During 2019-20, credit growth was 7.6%, driven by loans to non-bank financial companies and large corporations.
“The covid-19 and subsequent prolonged blockade have negatively impacted the business activities of SCBs (programmed commercial banks) due to weak demand and increased risk aversion. Retail loans may witness a marginal contraction in credit consumption as consumer demand moderates due to disruptions caused by covid-19, “Care Ratings said in a report last week.
“Between March 20 and May 8, state banks contacted 97% of borrowers eligible for emergency lines of credit and working capital improvements. Value of loans ₹Rs 65,879 million was sanctioned, above ₹26.5 billion rupees sanctioned on May 4, “he added.
State banks such as the State Bank of India (SBI) and Bank of Baroda (BoB) have been offering pre-approved emergency lines of credit, especially to support small businesses that have been hit hardest by the covid-19 pandemic and the subsequent emergency closure.
These were mainly limited to 10% of the working capital limit based on borrower funds.
A national blockade, established since March 25, has brought economic activity almost to a standstill, affecting companies.
To help mitigate the impact of the blockade, the government and the Reserve Bank of India (RBI) have announced a series of measures to improve the supply of credit in recent weeks and support businesses, the middle class and poor.
On March 26, the government launched a ₹1.7 trillion aid packages under new Prime Minister Garib Kalyan Yojana.
Experts said the amount was not enough to support economic activity.
There is a growing demand for a ₹9-10 trillion stimulus worth 4-5% of gross domestic product (GDP) to support growth and employment.
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