New Delhi: State Bank of India chairman Rajnish Kumar has said the minimal impact of Covid-19 on the rural economy, cheap crude oil prices and falling gold imports are some positive signs for the Indian economy, and expressed hope that the removal of the lockdown will revive economic activity.
Speaking to ThePrint’s Editor-in-Chief Shekhar Gupta at a digital Off the Cuff, Kumar said credit demand could revive after the lockdown ends, but pointed out that a slowing economy means that credit growth will not be at a 10-11 per cent level.
“When the GDP growth is 5-5.5 per cent, a credit growth of 10-11 per cent is possible. However, if GDP growth comes down to 1-2 per cent, then 8-10 per cent credit growth is not possible,” he said.
The SBI chief said sectors like aviation, tourism, restaurants, and entertainment, including cinema halls, will take a longer time to recover.
Kumar said the rural economy is showing signs of picking up as it has faced a smaller impact of Covid-19 than the urban economy.
There has been a good agricultural output; cement sales are picking up in rural areas and paint sales have not slumped, he said.
Kumar was positive about sectors like pharmaceuticals and health going ahead, and said if demand for the core sectors like cement, steel and power comes back quickly, economic recovery will be faster.
“But for that, it is important that lockdown should be lifted quickly,” he said.
The lockdown has helped in controlling the pace of infection and one can’t take steps that fritter away the advantage, Kumar said, but favoured resumption of economic activity in all areas with the exception of containment zones that are still reporting a high number of positive cases.
“For economic activity to resume, first sales have to resume. Production can resume, but there needs to be demand,” he said.
No demand for credit yet
The SBI chairman added that even if interest rates are reduced, credit growth may not pick up as long as there is no demand.
“We have reduced the rate of interest by 1.5 percentage points in the last six months. But there is no credit growth… Credit expansion is dependent on demand,” Kumar said.
Banks are flush with funds with no avenues of lending, forcing them to park these funds with the RBI at rates as low as 3.75 per cent. He said during these uncertain times, both banks and borrowers have become prudent.
The extent of the liquidity with the SBI is such that as on date, the bank does not need to accept any fresh fixed deposits, he said.
“SBI has all the money and willingness to lend, but I am not finding the people who are willing to borrow,” Kumar said.
However, Kumar cautioned against the perils of indiscriminate lending. The massive credit growth seen in the aftermath of the 2008 crisis was followed by a wave of bad debts, he warned.
15-20% of borrowers have availed loan moratorium
Asked about the Reserve Bank of India’s move to extend the three-month moratorium on loans further, Kumar said the Indian Banks’ Association has received proposals from various quarters and communicated it to the central bank.
He added that in SBI’s case, only 15-20 per cent of individual and corporate borrowers have opted for the loan moratorium.
Kumar pointed out that when the RBI had announced the moratorium on 27 March, it probably did not factor in that the lockdown would last so long. The Narendra Modi government had initially announced a two-week lockdown, but it has been extended twice, and is now set to last until at least 17 May.
Kumar said that for the SBI, retail lending has come to a complete halt as both home and car loan purchases have stopped.
One-fourth of the Mudra loan portfolio is NPAs
The banker also talked about the rising delinquencies in Mudra loans, or loans given to individuals to either start or expand their businesses. These loans target self-employed people — from vegetable vendors to rickshaw drivers to small shopkeepers.
Around 25 per cent of the Rs 27,000 crore Mudra loan portfolio of the SBI are non-performing assets, Kumar said, attributing diversion of the loan from productive purposes to consumption.
“We consider it the cost of social banking,” he said.