Culture of risk aversion may derail Modi's Rs 3 lakh crore booster shot for SMEs

R Gandhi, former deputy governor of the Reserve Bank of India said the crisis of confidence among the bank officers cannot be solved by changing the rules or enacting a new law that may put banking sector out of the purview of vigilance provisions. He said it is the responsibility of top management of the banks to restore the confidence.

New Delhi: An inherent culture of risk aversion in the banking sector and the fear of any vigilance action in the minds of bank officials for taking lending decisions that may lead to NPAs may prove the biggest hurdle in the successful rollout of Prime Minister Narendra Modi’s Rs 3 lakh crore booster shot for the MSME sector.

As a part of Prime Minister Narendra Modi’s Rs 20 lakh crore Atmanirbhar Bharat (self-reliant India) package, finance minister Nirmala Sitharaman last month announced a Rs 3 lakh crore collateral free credit line to the SME sector which is crucial for the government’s effort to kick-start the economy and generate employment post Covid-19.

“Over the period a situation has developed where there is a risk aversion in taking credit decisions,” said R Gandhi, former deputy governor of the Reserve Bank of India.

Despite a slew of measures announced by the government and the RBI, it is not easy to boost the credit to the SME sector. According to the banking and SME sector experts, the problem is two-fold.

While SME industry representative complain that bankers view the SME sector with suspicion and they are not forthcoming in lending money to the sector, on the other hand bankers fear that they will face vigilance enquiry in case of any loan sanctioned by them turns into NPA or bad loan.

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This is not a new problem, in the last 6-7 months, finance minister Nirmala Sitharaman assured the bankers several times that the government will protect them for the honest lending decisions.

However, it seems difficult to restore the confidence among bankers who tend to invest in the safest instruments available to them - the Government of India bonds and other similar instruments.

“This is not an easy question to answer because it is a culture. The culture has been continuously distorted for several years,” R Gandhi said in response to a question by ETV Bharat.

“Now the government has started saying that there are lakhs of employees in the banking industry and how many of them have been punished or action have been taken against them,” he said while commenting on the assurance given by the government that it will protect the bankers for honest lending decision.

He says that a cultural change is needed and it cannot be done by merely changing the rules or by bringing a law and the banking sector leaders will have to come forward to instil a sense of confidence in bank officers.

“The leaders within the banking system should be constantly talking about these confidence building measures. Because the culture is build more by talking and following the things in practice,” R Gandhi noted.

“Instead of saying that somebody else has to protect me, bankers should feel that I am a banker, I am paid for taking credit decisions. That is where it starts,” noted the former deputy governor of the Reserve Bank in a webinar organized by the Mumbai based electronic payments firm EPS.

SMEs crucial for employment generation, kick-starting economy

Even before the outbreak of global pandemic caused by the novel coronavirus early this year, Indian economy was in slowdown mode for nearly two years.

The highly infection SARS-CoV-2 virus has killed more than 3,74,000 people worldwide and its outbreak is expected to cause a loss of $9 trillion to the world economy.

Even before the outbreak of global pandemic, finance minister Nirmala Sitharaman had announced several measures between July-September last year to shore up the economy, including a substantial cut in the Corporation Tax and several other measures to increase the cash flow for the stressed sector.

However, these measures failed to arrest the slowdown in the economy and with the outbreak of Covid-19, it has become even more daunting for the government to turn-around the economy that is crucial for employment generation and achieving the target of making India a $5 trillion economy by 2024.

Given the importance of small and medium enterprises in the country’s GDP and employment generation, Modi government has announced several steps which include changing the definition of MSMEs, doing away with the difference between services and manufacturing sector, a Rs 3 lakh crore collateral free loan scheme for SMEs and a sovereign guarantee for the banks lending to the SME sector.

In order to support the SME sector which employs over 11 crore people, a meeting of Union cabinet chaired by Prime Minister Narendra Modi on Monday further liberalized the definition of SMEs.

SMEs demand implementation of scheme by banks

In an earlier interaction with ETV Bharat, Chandrakant Salunkhe, President of SME Chambers of India, underscored the need for proper rollout of the Rs 3 lakh crore collateral free loan for SME sector by the banks.

Another top banker, Mrutyunjay Mahapatra, former CEO of the Syndicate Bank admits that it is a cultural issue more than the issue of risk aversion on the part of bankers.

“This is a question that is perpetually present. I think some human behaviour is coming into play,” he said in response to a question by ETV Bharat.

“Because our culture is such, it is a culture of suspicion that somebody is making money on the side or compromising the credit assessment just for taking advantage of the situation,” Mr Mahapatra noted.

“That thing is there but I will not say this is risk aversion. It is a cultural issue.”

He said this is why the government has decided to extend guarantee for boosting credit to the SME sector.

Mindful of the problem, the government is also taking steps to ensure that loans to SME sector are not just sanctioned, but they are disbursed too in a timely manner.

R Gandhi said the crisis of confidence among the bank officers cannot be solved by changing the rules or enacting a new law that may put banking sector out of the purview of vigilance provisions. He said it is the responsibility of top management of the banks to restore the confidence.

“The responsibility will be more on the leaders of the banks,” said the former banker.

(Article by Krishnanand Tripathi)