Finance minister Nirmala Sitharam is scheduled to meet bankers today to discuss ways to boost credit flows. The backdrop to the meeting is the significant economic downturn on the heels of the lockdown and the reluctance of banks to lend despite Reserve Bank of India’s repeated measures to boost liquidity.
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From the standpoint of bankers all obstacles to higher incremental lending have been cleared, except a crucial one. That is, the extreme risk aversion which seeps in after a period of high uncertainty. Right now, no one can confidently assess the damage wrought by the lockdown. It is also tough at the level of an individual banker to confidently gauge the prospects of smaller companies. Unfortunately, the longer this condition continues the more damaging it gets for the economy. This, in turn, further inhibits lending.
The only way out of this situation is for the government to provide some level of comfort which catalyses lending. It could be in the form of partial credit guarantee or some other measure. In the absence of such a measure, the risk of banks preferring to avoid lending is high.
Read full story: Finance minister to meet banks today to track their progress
