Economy to improve in next two quarters, says Finance Minister Nirmala Sitharaman

Finance minister Nirmala Sitharaman on Thursday expressed hope that the economy will improve over the next two quarters of the current financial year as she urged private banks and NBFCs to step up lending amid good demand.

The Gross Domestic Product (GDP) growth in the first quarter of 2019-20 slipped to 5%, marking the slowest growth in over six years.

Sitharaman met the top management of 20 private-sector lenders, including banks, non-banking financial companies (NBFCs), housing finance companies and microfinance institutions in the national capital. She took their feedback on the situation with regard to liquidity, credit demand and customer sentiment.

Observing that the liquidity is not a problem with banks and there is enough demand for credit, she said, "Not one voice said there is a concern; there is a shortfall of demand. But to my surprise more credit is possible for them... because none of them voiced liquidity concern."

"On the whole, it was a very tonic-like meeting where I heard good things, positive things," she said after the meeting.

The minister hoped that an increase in demand during the festive season and improved lending by banks will have a positive impact on the economy in the coming quarters.

Talking about the automobile sector witnessing falling sales, Sitharaman said the people not buying commercial vehicles (CVs) is seen as a cyclical problem. "This is not new... it happened sometime in 2010…. Private bankers also and NBFCs specialising in CVs feel that it is a problem which will get over in the next one or two quarters.. Passenger vehicle (PV) segment what I heard here is largely driven by sentiment," she said, adding that the sales will resume in the near future.

Sitharaman, however, said that if there was a problem of liquidity it was in the wholesale financing and not in retail.

During the meeting, banks and NBFCs also suggested the limit for affordable housing eligibility should be raised to Rs 50 lakh from the current Rs 45 lakh per unit. "The bankers told me that affordable scheme which the government had launched has really taken off well.. with some saying that the scheme can improve if the limit can be raised from Rs 45 lakh to Rs 50 lakh," she said.

Meanwhile, public sector banks will hold outreach programme in 400 districts across the country during the festival season with a view to enhance credit disbursal, financial services secretary Rajiv Kumar said.

In the first phase between October 3 and 7, 250 districts will be covered. Private sector banks have also been invited to join the outreach programme.

Kotak Mahindra Bank's managing director Uday Kotak, who also attended the meeting, said private investment will respond to the reduction in corporate tax. He said most banks will follow external benchmark-based lending from October 1.

He also said the private sector was ready to participate in the government's outreach programme, "This is the opportunity for us when the government is going out there for us to prove what is our dharma, which is to lend money prudently rightly across the country. 

Alongside, we would be very happy to support an outreach programme, which enables us to grow our business which is our core objective and therefore it is very consistent. And we don't see any sort of pressure from the government to take any underwriting decisions or risk decisions which we are not comfortable with but we see a huge opportunity in this outreach programme at a time when we have surplus liquidity," he said.