The Finance Ministry of India, grappling with a slowing economy, announced plans to organize loan fairs, colloquially known as ‘loan melas,’ across 400 districts in the country. The aim behind this initiative is to boost liquidity in the market and encourage the flow of funds through different financial channels.
The Need for Financial Intervention
The decision to stimulate the economy through loan melas comes at a time when banks, even with ample liquidity, are not adhering to standard monetary policy transmission measures. There has been an increasing need to direct these idle resources towards productive uses which can essentially contribute to economic growth and development. The loan mela initiative will effectively push the banks to lend to Non-Banking Financial Companies (NBFCs), most of which are key providers of loans to small businesses in India.
The Role of NBFCs and Public Meetings
Post-receiving funds from banks, these NBFCs are expected to pass it on further to the end customers, primarily at public events or what’s commonly known as ‘Shamiana meetings.’ Thus, indeed, the role of NBFCs is pivotal in this chain of financial transactions – they serve as an intermediary link between banks and consumers, ensuring the smooth flow of funds.
Collaboration between Banks and NBFCs
In this planned action, banks and NBFCs are set to partner up to distribute the loans to customers. Specifically, the focus is to lend to the ‘RAM’ category – Retail customers, including homebuyers, Agriculture and farmers, and Micro, small and medium enterprises (MSMEs). This targeted approach aims at ensuring that the funds reach to the ones who can utilize them most effectively while contributing to the economy.
Plan for MSMEs
In addition to providing loans, measures are being taken to address the stress of MSMEs and recast their debt. As part of this plan, banks have been instructed not to categorize the stressed loans of MSMEs as Non-Performing Assets (NPAs) until March 31, 2020.
Facts about the Finance Ministry’s Initiative
| Fact | Details |
|---|---|
| Number of Loan Melas planned | 400 |
| Targeted loan recipients | ‘RAM’ category – Retail customers, Agriculture and farmers, and MSMEs |
| Cut-off for classifying MSME-stressed loan as NPAs | Until March 31, 2020 |
| Principal channel for providing loans to small businesses | NBFCs |
Expected Outcomes
The benefits that are expected to stem from these loan melas are multi-fold. Aside from improving the liquidity in the market, this initiative also promises to foster a more robust relationship between banks and NBFCs. Plus, by supporting sectors like retail, agriculture, and MSMEs, it offers hope for a phased recovery in the economy. The essence of these loan melas lies in not just providing immediate financial relief but also in paving a path for sustainable economic development.
