Few takers for bank loans, says Assocham

July 28, 2020 21:19

Stressing that there are few takers for bank loans, industry body Assocham on Tuesday expressed confidence the RBI's Monetary Policy Committee would brainstorm on the "difficult situation" during its meeting scheduled early next month.

Reeling under debt-ridden balance sheets and economic uncertainties in the face of Covid-19 crisis, the Indian industry is left with little appetite for any more loans, "with the result that most of bank deposits are either being parked with the RBI or used by the central bank to fund ever-increasing government borrowings", it said.

While the gross bank credit to industry has contracted by 1.5 per cent in the current financial year, up to the third week of May, disaggregate RBI data points towards a huge decline in gross bank credit deployment in sectors like fertiliser (down 29 per cent), chemicals and chemical products (- 10 per cent) and glass and glassware (7 per cent), it stated.

Barring far and few, most of the sectors witnessed degrowth in credit deployment with construction witnessing 3.7 per cent decline, gems and jewellery 3.7 per cent drop and leather & leather products by minus 4.4 per cent.

"The main issue today is as much capability to service a debt as availability of the loans. With a large number of industries still operating at less than half the capacity, leveraging their balance sheets further would be counter-productive," said Assocham secretary general Deepak Sood.

According to him, it is not the repo rate (at which the RBI lends to banks) which is playing out in the financial market, as it is the Reverse REPO -- the rate at which banks keep cash with the RBI.

"Even after meeting the increased requirements of the government borrowings, the system is flush with liquidity with virtually no takers," Sood said, expressing confidence that the RBI MPC would brainstorm on this difficult situation when it meets for the credit policy review.

The Monetary Policy Committee, headed by the RBI governor, is scheduled to meet for three days beginning August 4 and announce its decision on August 6.

Assocham in its analysis further noted that corporate India as also the informal sectors of the economy are in a 'fire-fight' mode and would avoid investment in the near future. -- PTI

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