Loan restructuring and other measures announced by the government to help the industry hit by the coronavirus pandemic may save public sector banks from “shock” in the next year, a top finance ministry official said. Despite the pandemic, the lockdown and the consequent damage done to the economy, there are quick signs of recovery, Financial Services Secretary Debasish Panda told in an interview.

“There is a steady uptick in the credit growth. Retail, home and agriculture loans are doing well, and MSMEs again, with the intervention of the government through the ECLGS and other similar schemes, have also picked up,” he said. Panda added that with the window for restructuring now made available by the RBI through the COVID-19 resolution plan, which offers resolution for all kinds of loans, the impact may not be that severe as had been projected earlier. However, it is difficult  ..

The Reserve Bank of India (RBI) in August permitted one-time restructuring of both corporate and retail loans without getting classified as a non-performing asset (NPA). Restructuring benefit can be availed by those whose account was standard on March 1 and defaults should not be over 30 days.

Therefore, he said, “We don’t anticipate a big shock going to hit public sector banks next year on account of high provision coverage ratio, steady decline in non-performing assets (NPAs), and other things.” There is some subdued demand in the corporate segment, he said adding that banks and the government are working together to revive demand for corporate loans and recently, the ECLGS has now been extended to more distressed sectors.

Banks have sanctioned loans worth Rs 2,05,563 crore to about 81 lakh accounts under the Rs 3-lakh crore Emergency Credit Line Guarantee Scheme (ECLGS) for the MSME sector that was impacted by pandemic-led disruptions. Of this, 40 lakh MSME (micro, small and medium enterprises) accounts have received Rs 1,58,626 crore till December 4.

To withstand headwinds due to uncertainty around COVID-19, the secretary said public sector banks (PSBs) have raised Rs 40,000 crore in the form of equity, and also AT1 and tier-2 bonds, and an additional Rs 25,000 crore would be raised in the next three months.

Besides, the government has allocated Rs 20,000 crore for capital infusion into PSBs in the current financial year through the first supplementary demand for grants passed by Parliament in September. Of this, the finance ministry has granted Rs 5,500 crore to Punjab & Sind Bank to meet regulatory requirements.

Talking about the financial health of banks, Panda said that 11 out of the 12 public sector banks have posted profits as on the September quarter. Even gross non-performing assets have gone down substantially and the provision coverage ratio has increased, he said.

“There is scope for improvement on return on assets and banks are working on that. By and large, all the financial parameters are showing positive results,” he said. On the merger, he said it has nearly stabilised and early positive signs of amalgamation are visible.

“The merger has nearly stabilised… It happened seamlessly despite the lockdown and the early positive signs of the amalgamation are now also visible. “They now have a larger capital base and their capacity to lend has increased, and then you have complementary products of the different banks that merged into the lead banks,” he said.

Effective April 1, United Bank of India and Oriental Bank of Commerce were merged with Punjab National Bank, making it the second-largest PSB.