With a majority of staffers involved in handling cash deposits and withdrawals, disbursement of home, automobile and education loans have been reduced to a trickle after demonetisation.

The government’s demonetisation move has put the brakes on banks’ revenue-generating retail business. Over the last fortnight, work on home, automobile and educational loans has come to a grinding halt, as a majority of staffers are engaged in handling exchange of notes and currency deposits and withdrawals.

“Banks are receiving a large number of deposits, but they are not able to deploy these productively, as no fresh loan cases have been made. The profitability of banks, especially nationalised banks, is going to be severely affected. And, these banks are already battling the huge menace of non-performing assets,” said Vishwas Utagi, vice-president of All India Banking Employees Association.

Banks received Rs 5.11 lakh crore in deposits until November 18.

An executive director of a nationalised bank, who did not wanted to be named, said that while banks’ retail loan business has been severely affected, there has been no impact on the corporate loan business, which is handled by dedicated teams at regional, or zonal offices.

According to data accessed from the Reserve Bank of India, the banking sector gave fresh loans of Rs 702,359 crore in the 2015-2016 fiscal, out of which Rs.215,583 crore, or nearly 31% of loans, were made out for personal needs such as home loans, automobile loans, loans for consumer durables and education, among others.

“There will be impact on revenue growth and profitability in the current quarter (October to December), but things will start improving, as cheap funds will be available with banks to drive further business growth.”

Meanwhile, the global credit rating agency Standard & Poor has observed that “economic risks faced by banks in India have increased amid deteriorating credit profile of corporates, while demonetisation could hurt lenders’ asset quality in the short-term.”

Its recent report titled Banking Industry Country Risk Assessment: India, said, “While the demonetisation of 500 and 1,000 rupee notes would be positive in the longterm, it will have a transitory impact on growth in the short-term and could hurt banks’ asset quality.”

No mitigation in cash pain for city

Citizens queuing up for cash at bank counters are being allowed just Rs 5,000 to Rs 6,000 per person for the last few days, as banks are getting merely one-sixth of the cash requirement, leading to chaos at the branches. The shortage is mostly because of focus of the government tilting towards rural areas and funds are being made available in rural and semi-urban pockets so that farmers get adequate cash for sowing rabi crop.

According to a senior bank official, branches of various banks in Mumbai and Delhi are getting much less cash than their requirements, which is why all the customers are not being serviced.

‘Prosperity will follow patience’

Dubbing demonetisation as a war against corruption, Chief Minister Devendra Fadnavis appealed to people to cooperate with the government as “freedom fighters”. “Our biggest challenge is to make our nation free from corruption and black money. We all are the proud freedom fighters who are in the process of making nation free from corruption. Just co-operate for 50 days and 50 years of prosperity is ours,” Fadnavis said on Friday while canvassing for the November 27 Municipal Council and Nagar Panchayat polls.

No proposal to restrict domestic gold holding

The government is not considering any proposal to restrict holding of gold by individuals, a top finance ministry source said. Following the demonetisation of 500 and 1,000 rupee notes, there were apprehensions that it might impose some kind of restrictions on gold holding by individuals. “There is no such proposal before the government on restricting domestic gold holding,” the source said. There were reports that many people have converted their black money into gold following the announcement of demonetisation of high denomination currency notes on November 8.


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