What’s more, the behaviour of private and public sector banks
(PSBs) towards PSL loans is different. As Purohit explains, private lenders do not lend just to meet PSL targets. Instead, they procure vehicle loans, auto loans, and MFI loans (lent by microfinance institutions) to meet their targets.
“This practice may continue, and hence, they may remain reluctant to lend to new segments,” he says.
PSBs are more proactive in meeting their PSL targets and hence, the inclusions could certainly open up new avenues. Over a period of time, these could add to their loan books. However, in the near-term, they are expected to be cautious lending to these pockets.
A bulk of bad loans come from renewable power projects, mainly solar, in which projects have turned unviable owing to the crash in power procurement prices.
Likewise, exposure to agriculture comes with the risk of loan waivers, as seen in the past, and non-performing assets in this segment were quite high for PSBs (8-10 per cent) until FY19.
Loans to start-ups are akin to MSME (micro, small and medium enterprise) loans, where bad loans are also steadily rising. “PSBs’ past experiences may force them to remain careful and, hence, the circular may not have an immediate bearing on credit approach,” said another analyst with domestic brokerage.
Moreover, for lending to start-ups, banks will have to put in place a robust mechanism, given start-ups have limited collateral and a performance track record to offer. Though the intention of the RBI — to propel credit for the undeserved categories — is laudable, the timing of the circular may limit immediate success.