FM Nirmala Sitharaman announced loan 'mela' despite banks' reluctance

Topics PSB | PSBs | MSMEs

Finance Minister Nirmala Sitharaman (PTI Photo/R Senthil Kumar)
Some public sector bank (PSB) executives had expressed reservations on Finance Minister Nirmala Sitharaman’s proposals of holding public camps for distributing loans in 400 districts of the country, in a meeting held on Thursday.

In fact, PSB executives were not too sure if they would be able to not classify all the stressed loans of micro, small, and medium enterprises (MSMEs) as non-performing assets (NPAs) till March 2020, two PSB executives said, requesting anonymity. The proposal came as a surprise to the bank executives.

“The FM had made up her mind and was unwilling to listen to some PSB executives who had a different take on this issue,” one of the two senior PSB executives, who was a part of the meeting, said.

The executive said PSB chiefs tried to argue that liquidity is in surplus in the system and the problem was related to lack of demand in the economy, instead of banks’ reluctance to lend. “But the FM said that it is a perception issue that loan is not available, which we need to dispel,” another executive said.

Some bankers sought at least a month’s time to organise such loan distribution camps, known as loan mela, but their request was not acceded to. Instead, banks were given a notice period of two working days to organise such camps in 200 districts initially as the government wanted to prop up credit flow in economy ahead of the festive season. Banks will be accompanied by local non-banking financial companies (NBFCs) in such public meetings for distributing all types of loans. It will take place in two tranches — from September 24-29 in 200 districts and from October 10-15 in another 200 districts in “shamiyana” or ceremonial tents, according to the FM’s announcement. They have been given target that for every existing customer, banks will have to bring in five  new borrowers.

Thursday’s meeting was supposed to be a review meeting with PSBs and the meeting was slated to be held in two parts — first one to be chaired by Finance Secretary Rajiv Kumar and the second one, in the evening, to be chaired by the Finance Minister.

In the first phase of the meeting, Kumar took stock of the progress made by banks to various announcements by the government in the past few days. However, he did not mention about the announcements related to the MSMEs and the loan mela.

It was only when Sitharaman attended the meeting in the evening that the ideas were mooted. Initially, the FM had suggested that the stressed MSME assets should be analysed and given additional funding so that they don’t slip into NPAs. The bankers accepted this idea. “However, she then asked ‘can you assure us that none of the stressed assets are classified as NPAs till March 2020?’” a banker said.

The second half of the day-long meeting with PSBs was supposed to be focussed on merger of 10 PSBs into four announced by Sitharaman last month. 

Four general managers, executive directors, and managing directors of each banks, which were supposed to be merged, were called for the meeting. However, the government took stock of the progress made and mainly focussed on the measures related to MSMEs and loan mela.

Sops galore 


  • Stressed but standard loans of MSMEs not to be classified as NPAs till March 31, 2020
  • Banks to follow RBI's January 1 circular to ensure that MSME accounts are either restructured or remain in the stressed category 
On credit boost
  • Banks to hold camps to distribute loans, known as loan melas, in 400 districts
  • Banks to be accompanied by NBFCs to give out all types of loans
  •  For every customer, five new borrowers to be given loan by banks


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