Economic recovery post-COVID-19: PM Modi asks banks, shadow lenders to help revive growth

He also reviewed the impact of the Atmanirbhar package, which laid a great emphasis on the credit-led economic recovery. (File image)

Prime Minister Narendra Modi on Wednesday held a virtual meeting of chiefs of top banks, shadow lenders and government officials and discussed possible ways to engineer a swift revival of growth, as the Centre announced the Unlock 3.0 following the Covid-19 outbreak. He also reviewed the impact of the Atmanirbhar package, which laid a great emphasis on the credit-led economic recovery.

This was the latest in a series of meetings, chaired by the prime minister this month to firm up a strategy for an economic rebound. He had already convened meetings with top officials from the finance ministry, NITI Aayog, Prime Minister’s Economic Advisory Council and a few other important ministries.

“The topics on agenda include credit products & efficient models for delivery, financial empowerment through technology, prudential practices for stability and sustainability of the financial sector,” the Prime Minister’s Office had said in a statement on Tuesday.

In its Financial Stability Report, the RBI has forecast that gross non-performing assets (NPAs) may jump from 8.5% at the end of March 2020 to 12.5%, a 20-year peak, by March 2021. However, the NPA level may shoot to 14.7% by March 2021 in case of a severity of economic stress.

While the repayment moratorium is offering some relief, lenders may find a wave of loans turning bad once the relief ends in August, according to the central bank. RBI governor Shaktikanta Das has advised banks and other financial institutions to proactively raise and conserve capital to be able to beat the stress.

The non-food credit growth remained subdued at 6.8% as of May 22 from 11.4% a year before, thanks to risk aversion among bankers and weak demand. “Banks are cherry picking their credit portfolios with caution, hence credit growth of banks is expected to remain slower in the near term,” according to a CARE Ratings report.