Government exhorts banks to lend more to industry given multiplier benefits for country’s economic growth

DFS secretary Sanjay Malhotra said in the last decade industries' share in the overall credit by banks has decreased by 16 percentage points to 26 per cent, and the same needs to increase.

Secretary said that the maximum loan growth has been in the retail segment over these years: PIxabay

The Union government on Friday urged bankers to increase lending to the industries segment given the multiplier benefits it offers for the country's economic growth.

The Department of Financial Services (DFS) under the Union finance ministry is also mulling to carry out a survey on customer service for banks and come out with rankings of banks on the same, a top official said.

DFS secretary Sanjay Malhotra said in the last decade industries' share in the overall credit by banks has decreased by 16 percentage points to 26 per cent, and the same needs to increase.

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He said that the maximum loan growth has been in the retail segment over these years, and the banks have been focusing on the same.

Also, there have been changes like larger reliance on corporate bonds and a structural shift in the economy towards the services sector, he said.

A few years ago, banks were persuaded by policymakers to not to give so much loans to the industrial segment given the experience of lumpy sour loans, and rather focus on retail credit to serve the financial inclusion priority.

"We have to take along all segments. We have noticed that along the years, the credit to the industries has decreased," Malhotra said in an address to bankers at industry lobby Indian Banks Association's annual general meeting here.

Listing out data on the decline in composition of credit to industry in the overall pie over the last decade, he said, "We need to take back that space, we need to support this (credit to industry) because of the huge multiplier effect that investments in credit to the industries has on the economy."

In the last few quarters, industry has undertaken a massive de-leveraging exercise courtesy the high profits that it has made during the pandemic, rather than using the space for new investments. Experts say lack of clarity on demand made them opt for this even as RBI's surveys have been pointing to an increase in capacity utilisation rates.

Malhotra, who oversees government's holdings in state-owned financial institutions, also urged the private sector lenders to pull up their socks and help the government in achieving policy objectives on financial inclusion.

He said private sector banks' contribute only 3 per cent to accounts opened under PM Jan Dhan Yojana, 4 per cent to Pradhan Mantri Jeevan Jyoti Bima Yojana and PM Suraksha Bima Yojana, and 7 per cent each to Atal Pension Yojana and Kisan Credit Card.

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