Loan Melas May Trigger Fresh NPA Crisis

There has been an NPA spike in the agri and MSME space. The directive to lend freely to this segment could worsen matters.

- Radhika Merwin

“They had learned nothing and forgotten nothing”. This oft-repeated quote is what comes to mind with the Centre’s latest ‘loan mela’ drive. The proposed loan camps alongside dispensation for stressed MSMEs is a throwback of sorts to the genesis of the ongoing bad loan mess. After all, much of our NPA problems and India Inc’s indebtedness stems from shoddy decisions and indiscriminate lending in the mid-2000s, triggered by political interventions and crony capitalism.

In a desperate attempt to revive the stuttering economy, Finance Minister Nirmala Sitharaman announced that all banks are to hold large gatherings in 400 districts, where customers can come and take any type of loan from banks and the NBFCs partnering with them. It has been said that the last time such loan melas took place was in the early 1980s. But under the BJP-led government, such a massive-scale initiative reminds you of the Jan Dhan drive in which eight crore accounts were opened in just 100 days.

But then, lending and opening of accounts are two vastly different things, are they not? This is a question that the government, hell-bent on jump-starting the credit engine in the economy, needs to ask itself before embarking on such a massive-scale loan campaign.

Lending involves assessment of the creditworthiness of a borrower, careful due diligence of the purpose for which the loan is being disbursed and continuous follow-up. Side-stepping any of the credit appraisal processes to meet the FM’s “five new customers for every one existing customer’’ diktat can only spell trouble for the banking sector, which is still reeling under the after-effects of indiscriminate corporate lending.