NEW DELHI: Banks will be asked to tap into the “digital footprint” of small businesses, including salary payments, electricity bills and municipal taxes paid by them, along with GST and provident fund details, to decide on loans given to them as govt seeks to replicate the home loan model to boost lending to this segment, which has remained in loan shadow zone, financial services secretary Vivek Joshi told TOI.
“Often the bank manager knows that a small businessman is doing good business, but the rules bind him from giving a loan. The new mechanism will help provide funding. The bank accounts by themselves can provide so much information on a borrower,” he said during a post Budget interaction.
Currently, banks insist on balance sheets, income tax returns and other documents before deciding on whether to lend or not. But with data it is possible to appraise businesses even during their initial stages of operation for which FM Nirmala Sitharaman announced a new credit rating mechanism in the Budget. Joshi said banks will develop the framework on their own, but some broad parameters may be discussed by the Indian Banks’ Association.
RBI’s “frictionless credit” is a step in the same direction, relying on digitised land records, MSME registration on govt portal, or even sale of milk to cooperatives such as Amul, to offer loans in 10-15 minutes.
The high-ranking bureaucrat said the state-run entities have been asked to study the friction points to improve customer service. “We often see young people banking with private banks, probably because they offer better services. There is a lot more that can be done by the public sector banks although they have been trying to improve their service levels,” he said.
Joshi also said that banks must be more efficient in mopping up low-cost current account and savings bank account (CASA) deposits, where state-run players are lagging. At the end of March, the share of CASA had dropped to 41%, as against 44-45% a few years ago, although it is not seen to be low.
Asked about the plan to privatise two state-run banks, which was announced in 2021, he said the bank nationalisation law will require amendments, which is being considered by govt. He emphatically rejected any fresh move for merger of PSBs, saying it was “pure speculation”.
The finance ministry has, however, sought a waiver for five public sector banks – Bank of Maharashtra (86% govt stake), Central Bank of India (93%), Indian Overseas Bank (96%), Punjab & Sind Bank (98%) and Uco Bank (95%) – from the minimum public float requirement of 25%. GIC Re and LIC would also require some more time to meet the norms. Typically, the exemption is given by Sebi for two years.
Besides, the financial services secretary said that govt will watch the performance of state-run general insurance players – Oriental, National and United India – before offering more funds for recapitalisation. Having been asked to focus on profitable business, Oriental Insurance turned profitable last year, while National narrowed its loss to Rs 187 crore and United India reported losses of Rs 800 crore. Over 3 years, starting FY20, govt has provided Rs 17,450 crore for recapitalisation.
