RBI Governor Shaktikanta Das called for the bank heads of the public sector to improve the credit situation in India. On Monday, the meeting at the RBI headquarters in Mumbai for almost 3 hours does not seem to have produced any result. Das told the banks to intensify their activities at the branch level and encourage them to take loans by meeting customers. Most banks told RBI that they are ready to give loans but there is a shortage of borrowers in the market. A bank chief even expressed the fear that the pace of loan could further decrease in the coming months. On the other hand, RBI released the debt distribution figures for January 2020 on Friday. There was an increase of 8.5% in the loan disbursement that month, although in January 2019 this increase was 13.5%.
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The worst situation is that of the service sector in which the pace of debt has reduced from 24% to 9% during this period. Before the release of these figures, Finance Minister Nirmala Sitharaman had a separate meeting of RBI and bank heads in New Delhi. Sitharaman had told the banks that they need to resume branch level banking so that they have personal contact with customers and they come forward to take loans. The RBI governor gave the same message to the bank chiefs but the attitude of the banks is clear that the real problem is not from their side, but only the borrowers in the market.
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An official who attended this meeting said that the real problem is the demand. There is no demand in the market and the industry feels that the demand is not going to increase. The industry is not coming forward to take a new loan. The situation is that there is excess capital in the entire banking system, which they want to use for lending, but this is not happening due to lack of demand. A bank chief clearly stated in the meeting that the pace of loan disbursement may decrease further in the coming days.
