The government has taken several initiatives to revive the market. It seems that these efforts are not very impactful because the credit demand since June has significantly dropped when compared with demand in the pre-COVID period.
To boost the credit flow in the market, the government has taken several measures. The Reserve Bank of India has taken steps with the hope to bring liquidity again in the market. Despite these innovative measures, the leading financial organisations (banks and non-banking financial companies) are surrounded by troubles.
The demand for personal loans and other credit facilities dips during the pandemic
The market for unsecured loans such as personal loans, which is the backbone of lending organisations has witnessed a decreased demand this year. They are not much-in-demand and slowed down to 10.5% from 15%. The credit demand for the priority sector, in general, has been recorded at the lowest of 1.9%, which used to be 10.2% per annum on an average. The demand is there, but it is increasing at a diminishing rate.
As the current situation depicts the instability in the economy; be it an MSME (Micro, Small, and Medium Enterprises) loan or be it a more individualised loan like a personal loan, we can see people are uncertain while taking any type of loans.
During the lockdown, many people have faced salary cuts, and many businesses were completely shut down, which resulted in shrunk purchasing power and lack of cash-in-hand of the people. According to The Hindu, 12.2 Crore, people lost their job during the lockdown.
The food processing, textile, raw metal, and iron and steel infrastructure contributed around 70% of the overall credit in the market. These sectors during the pandemic have recorded negative credit growth. Also, during the lockdown, there was a situation where the MSME sector was on the verge of collapse.
Then, in April, our honourable Finance Minister, Smt. Nirmala Sitharaman has announced several loan schemes for MSME( Micro Small and Medium Enterprises). The sole aim of these schemes was to assist these businesses to deal with the impact of COVID-19. She declared that the scheme of GECI (Guarantee Emergency Credit line) will assist the people in business to tackle their liquidity issues. By introducing this scheme, the government is striving to provide relief which is much needed to the MSME sector. It includes a collateral-free automatic loan of rupees 3 lakh crore. The businesses that have a turnover of rupees 100 crores and outstanding loans of worth 25 crores are eligible for the loan GECI.
The government introduced these schemes with the hope that MSME will meet their operational liabilities and resume their business. The central bank, the Reserve Bank of India (RBI) introduced a regulatory package aiming at relaxing the terms and conditions for various credit facilities for individuals, especially the personal loans. But as per the quarterly report, all these efforts seem to have a lukewarm impact.
Whether it is an entrepreneur or salaried employee or self-employed person, most of us are facing financial troubles. If not then, you are fortunate that these days to have a consistent and stable source of revenue.
Despite several measures of the government, taking loans is not in their to-do list and may not be an idea they would want to think about in the time to come. Also, people are not very confident that they will be able to repay the borrowed amount or not. Let’s hope we will able to resolve the situation and manage to weather the storm with all the help provided by several financial organisation.