Banks are finding the assessment of the credit risks of borrowers a bigger challenge than disbursement on account of uncertain cash flow.
“The constraint for banks today in lending is credit quality. But more than that, it is about risk assessment in situations where there is so much uncertainty. I cannot ask the industry or MSMEs to give projections for 2020-21 or 2022-23 today. There are schemes that are linked to the working capital pre-assessment that the RBI had asked us to do. We will do it. But we will need a stable environment to look at the future and that is not yet in place,” said Padmaja Chunduru, MD and CEO of Indian Bank.
She said that banks have to factor in several aspects such as whether a unit is functioning, whether adequate workers are available, the ability of the borrower to meet statutory and fixed commitments for corporate credit disbursal in the present situation.
“Banks are found in a Catch-22 situation. If we don’t lend today, there would be more failure. If we lend today, it might turn bad and hit back on the bank’s balance sheet,” she said at a session organised by the Indian Chamber of Commerce on Monday.
The Emergency Credit Line Guarantee scheme announced by the government last month offers partial relief to lenders but there are eligibility criteria for MSME borrowers.
Under the scheme, MSME borrower accounts with outstanding credit of up to Rs 25 crore as on February 29, 2020, which were less than or equal to 60 days past due as on that date, and with an annual turnover of up to Rs 100 crore would be eligible for the credit line.
Indian Bank, having merged Allahabad Bank with itself, has identified around 4.5 lakh MSME borrowers under the scheme and expects to disburse around Rs 8,000 crore through this route.
“Today we have around 4.5 lakh customers who are eligible for these loans and in the last two weeks a marathon exercise of reaching out lending to MSMEs is happening. Even today we have reached out to more than a lakh customers. We have sanctioned almost around Rs 3000 crore,” said Chunduru.
