 Thanks very much for joining us Mr. Franco, you know let's begin with what the RBI has said it has asked the banks to keep a bigger buffer in case where it is giving loans, unsecured loans in particular to personal borrowers. Why do you think this is being done? Is it to slow down the credit off take? Is it in order to be able to manage the liabilities that are there so far? What could be the reason? I am glad that RBI has opened up but this indication has been there for quite some time. The loans which are increasing is the personal loans to some extent MSME loans and large credits are given to the non-banking financial companies. So now RBI has said that you should keep a better buffer for the personal loans and also for the non-banking financial company loans. There was a time non-banking financial companies were not given finance with a principle that the banks should not lend for on lending to somebody else. They should lend it directly but now that has been given up and almost one third of the loans in the market is given by the banks to the non-banking financial companies at a cheaper rate and they are giving it at a very high rate that is 6 percent 40 percent and that is affecting the people as a whole and these are the loans which are not likely to come back also. Why do you say that they are not likely to come back? See the economy is not doing well though some of the claims show that we are doing very well and all. In fact just today we have the Q2 GDP data which paints a rather positive picture on many fronts. Yes that is because sometime back they have changed the criteria of collecting the data and certain data they don't allow to be collected like the national sample survey data they have not disclosed it when it was done last time because it was not satisfactory for them. You mean the consumption data? Yes yes. So now the first of all loans if you look at the figures that is alarming. The just an analysis within four years which Mr. Subhash Chandra Garkh former economic affairs secretary who was also a finance secretary has written an article which shows that in four years it has increased from 23 lakh crores to 48 lakh crores just in four years more than doubled. This is your outstanding personal loans? Yes. Right. And out of this what is more dangerous is the unsecured loans for which there is no collateral there is nothing to fall back for the bank that has increased from 7.4 crores to 16 lakh crores. Right just over 16 lakh crores yes. This can go bad as I said the economy is not doing well the non-banking financial companies they give without any proper assessment and when the people are not able to earn money to repay they will default same thing will happen with the personal loans and the huge interest rate adds to the burden. Right. And the tendency to default increases. Right. So this is the danger one of the dangers which are. Now these unsecured personal loans the RBI has actually exempted a lot of loans your home loan your car loan your loan taken against gold or gold jewelry all of this will not be under the higher buffer rate it is only for the loans which have absolutely no collateral. Yes. Which means somebody needs. Which is called the unsecured loans. Would something like a government scheme like mudra also be under a higher level of scrutiny now after this. Already there has been a scrutiny recently the finance minister herself had a meeting with the managing directors and chairmen of the bank to have a look at the in the presence of RBI to have a look at the MSME loans together. Right. And mudra loans in particular because the number of mudra loans which the banks have given at the last seven years it is of disproportionate scale. I think you have some figures for that. Yes. 44 lakh sorry 44 crore beneficiaries accounts 44 crore customers have been given a loan the loan outstanding is 24 lakh crores which is very huge in the last seven years. Now if we compare the number of loans with the number of households as per the 2011 census data after that no census has been done the number of households in the country is 24 crores. Right. So if we have given 44 crore loans so almost every household two people would have got the loan. Almost that is right. Where is that loan? How are we seeing so many enterprises flourishing in the country? Well because the enterprise survey is the industry survey is another survey I think which has not been conducted. Yes. So we don't really know. Yes they keep looking at the figures of that Udyog portal there is compulsorily everybody has to register if they start a small enterprise and that is taken as a data but that enterprise may not be surviving. We have seen that in the case of mudra loans quite a number of borrowers they are not able to run that business and it closes down very quickly. The loan amount is also small 50,000. That's right. 5 lakhs maximum is 10 lakhs. So somebody who is taking a 50,000 rupee loan one can safely assume that this is a home based enterprise right and so unless the government does a census or a survey will not really know how many of them survived or did well or did not manage to you know do what they took the loan for. Yes, urgently there is a need for a survey to find out the reality. How many of these enterprises are surviving if they have not survived why they have not survived then only you can bring a solution as to why they needed the loan. Yes. So now tell me why are personal why is the RBI so keen to control the you know the giving out of personal loans is it that the banks have been careless or is it that it feels that there is a larger risk to the economy what could be the. It is because there is a larger risk to the economy. Banks have not been careless banks have sufficient deposits so they have to give loan and it is the same RBI which has been compelling banks to give loans to the non-banking financial companies. Right. They have not put any restriction on personal loan earlier. Right. Whereas there are some banks which still have a criteria that unless your salary is credited to your account in that particular bank branch they are not entitled for a personal loan that is a secured loan. Salaries attached to that. Right. But what I called the unsecured loans there is no such kind of a tie-up with the bank. It is like you go on an app and take something. Yes now the app based loans are also given you do not have to go to even the bank the public sector banks private sector banks have also introduced that scheme. You know Mr. Franco why I am asking you questions related to this again and again is because there are two ways of looking at it one is that you know there is this huge unleashing of entrepreneurial spirit and the other is that well people do not have enough money to manage their day to day expenses whether for the enterprise or even for the home and that is why they are taking the loan. How do we clearly assess what is going on in the absence of consumption data in the absence of industrial survey. So is it really are we shooting in the dark are we forced to shoot in the dark. We are shooting in the dark because we have not created an atmosphere for the enterprises to grow. If the enterprises have to flourish you have to create an atmosphere you have to help them in marketing I will just compare it with Israel. I had been there for a training and when I questioned an resource person who was sharing the enterprises the startups which are increasing in Israel it is known as the startup nation. So I said that see I am a banker I am very worried when I have to give a loan to a new enterprise. So here how do you get the money. She said that there is no need for the bank to give loan. If you have a good proposal the government gives the money for starting up enterprise then subsequently you have established it and you want to grow it gives loan at 2 percent. Once it is established well and survived in the market bank goes to the person says that you expand we will give you loan. But here we don't have that we do have some money as seed money which is very meager most of the people do not have access to that so the enterprises are not able to survive. Is this something like the ECLGS scheme where the government during the COVID lockdown actually gave you know asked people to take these loans and and you know what has been the repayment pattern over there because the government there actually built into the scheme the whole idea that about 2.5 lakh crore would be written off it's as a first off you know sort of write off was is this comparable with what you saw in Israel. No this was a short term master when the economy was in crisis COVID you know that the enterprises could not run that time it was given as a short time credit and that too the MSME representatives they keep accusing the government that you allowed this finance to go to enterprises which were already doing well you were not giving this to the real people who were really into a crisis so account which is standard and doing the doing well they were given that assistance that was a temporary assistance in the Israel's instance what I'm saying is to encourage new enterprises to flourish the government takes the risk China they ask the development banks to fund these enterprises new enterprises let it come back universally there is a study which says that across the world new enterprises only 10 to 15 percent they survive right so the rest how you have to take care the Chinese banks are given funds that okay even if 15 percent survive it creates employment that is good for the economy the rest which is not surviving we will take care we'll write down okay so let's move from the personal loan and the MSME loan segment to the so so one of the things that is mentioned in the article by Subhash Chandigarh the former finance secretary is that you know the loans to the large enterprises as well as to the infrastructure sector those are actually not as big a share of the loans that the banks are providing what is happening there see number one there was lot of loans given to the infrastructure with the banks there was a credit mismatch in the sense the deficits which you are taking is for a short term maximum is five years whereas the long-term credit it is nine years ten years twelve years so there is a mismatch and this large enterprises road construction road energy electricity refinement was not coming right so the banks have reduced lending to them they have become little more careful cautious because you know about the RBI recommending 12 big loans to the national company law tribunal it had the ocean steel, ocean power, SR steel, SR power, Anil Ambani's one group so like that huge credit was given for infrastructure telecom too and that was not coming so the banks have become little careful but in spite of that banks have given quite a lot of large credit in fact 2017 RBI issued a circular it gave a notification that by 2000 no corporate should be given loan more than 10,000 crores okay they clearly explain that the NPA is increasing if you are doing well you can go to the market bond market security market share market there you raise your funds right banks should not lend more than 10,000 crores as a consortium to one corporate but that has not been implemented so because of that maybe today's the outstanding of instance Adani's group will be more than 2 lakh crores such kind of big credits are given once they go bad they affect the economy we can't predict that these enterprises will always do well that dangers can suddenly come we have seen in the 2008 crisis 2000 Asian financial crisis that nobody was predicting that something is going to happen but suddenly collapse comes so that way in my understanding the large credit the infrastructure credit should be given by the development financial institutions this government has killed not only this government even before that they started killing them they converted them into commercial banks so all the commercial banks have been forced to give long-term loans so this large credit can always lead to a crisis if even one industry goes well basically because the total number of large borrowers is small but the total figure of the loans they have is very very large yes so even one or two enterprises falling back on their payments means that the it can send a ripple through the backing RV data shows that 15,340 borrowers have been given loans above 100 crores which the credit is 7 lakh crores and the outstanding is 4.5 lakh crores which is huge so even if one enterprise with an outstanding credit of 1000 crores goes where it will affect the balance sheet of a smaller bank that's right except state bank of India it has large balance sheet they can afford but other banks they cannot so what you are saying is that the risks of to the banking sector arise from both the large number of personal loans that have been given out which the RBI seems to be now trying to control as well as the fact that even though the credit offtake for the large enterprises is not growing at the same pace as earlier but those old risks have not been dealt with yet so what are the solutions how does one go forward one more factor is there right see this government had been forcing banks to give large number of Mudra loans now as per the September data of 2023 RBI data there are more than 44 crore customers given loan under the Mudra loan scheme okay Shishu, Kishu, Darun three schemes are there the outstanding they loan given was little more than 24 lakh crores and many of this enterprises are not surviving so they are also the the MSME NPA which Mr. Garg had mentioned mainly it is attributed to the Mudra loans and the 44 crore people if we have financed this should have been like once upon a time when there was a scheme like IRDP integrated rural development program people used to say that the number of cows financed by the bank if they are there there won't be any place for people to walk okay so in our country with 24 crore households if 44 crore people have got this Mudra loan everywhere you should be seeing enterprises flourishing which is not happening so there again the default is increasing and so that is also going to it is an indicator that it can lead to a crisis so even the middle you're saying is at risk not only the top and and the bottom but even at the middle of the the small borrowers the individual personal borrowers as well as a large enterprise borrowers all three things are where the government needs to pay greater attention to what's happening definitely the government has to pay attention the RBI has to have closer scrutiny and banks themselves have to wake up they should clearly analyze where they are going are you saying this based on the NPA data is this because we know already that the rate at which people are hoping that the loans will be written off and then later become NPAs is increasing yes see in the case of Mudra loans the political party representatives themselves are telling people that this is given by the prime minister right so even if you don't pay nothing will happen so people tend to not to refay only thing they don't know that their name has already been entered in the civil so if they don't refay tomorrow they will get into a problem they will not get a fresh loan and it's not just that now you have a whole host of legal problems which can hit you if you do not repay you have not just civil you have the surfecy act you have you know the deposit you know any borrower is going to be liable to a certain extent and then you also have this entire hordes of people who collect loans from individuals right if they don't repay they could be in other kinds of trouble legal or not yes see especially the loans which are given by the non-banking financial companies and also now the banks have been allowed to have coal lending model in which the bank is giving the loan 85 percent of the loan is given by the bank but it is a non-banking financial company like Adani capital who will identify the borrower and disperse the loan right and if it is not coming back who is going to be responsible you tell me what is the legal framework for that see now for that we really don't have any legal framework the only what is the surfecy act which you are saying that the recovery tribunal it is for higher loans that's NCLT is for more than 10 crores that's right but the surfecy act can be used against any borrower no but we see so many reports and it's very concerning that you know there are these people who have borrowed and then they get these calls and they are harassed some app you know they have used which they have borrowed money from and then you know there have been suicides as well over these small loans which people take so the risk to society might be much bigger if no legal structure is in place for both lending and returning the money after borrowing yes that danger is very visible lot of loans apps have come right they offer you loan without any collateral right and people when they are in need of money without looking at anything else they just apply through the app right and the apps have very dangerous provisions like there is a very detailed report by BBC which shows that once you log into that app they get access to all your contacts right so they use that contacts to pressurize for recovery of the loan right and that is what has led to many suicides not only one suicide right in Tamil Nadu itself the DGP of the police had to give a public statement that please don't get into these apps loan loan up same thing happened at a larger scale in Gujarat the DGP Gujarat had to come and tell the public please not to use but this would have been controlled earlier itself by the Reserve Bank of India how do you allow people to have access to the bank data because of the UPI platform and that is used to get all the details of the borrower and that has led to this problem and we do not have a real legal mechanism to monitor this kind of misuse all right you just download an app and do something yourself yes Kundas are being used yes they go and threaten at home they phone up and talk in such abusive languages right ladies have committed suicide because of the language which was used against right so so what you're saying so let's come to the quickly to these solutions part you know earlier the NPAs in the in the banking sector came from the very you know sort of a loan party which was held you know about a decade earlier now you're saying it's the opposite the loan party is happening but it's happening at the bottom at the middle level for the small borrowers so how does one how does the RBI approach it what should the government do see number one the small borrowers should be given credit by the banks not by the non-banking financial companies they should be eligible for cheaper credit not the corporates who are now able to get four percent five percent rate of interest housing loan you are paying a huge interest that's right education loan you are paying a huge interest so the small loans if it is given by the banks especially by the public sector bank it can create a demand in the economy also and it can really help the people that is not happening once you are giving through the NPFCs it is huge interest rate and all kind of harassment and the NPFCs also don't have to follow the same capital requirements that a bank has they do have a capital requirement but it is a diluted one right so most of them are dependent on banks too for the funds they don't have their capital to learn right and most of them are not allowed to collect deposits also right so they depend only on the mainstream banking system to get then just they have become like brokers moneylenders only so this is one thing which has to be done secondly the personal loans personal loans should be encouraged with security like the housing loan and for that the interest rate should be lesser at least for smaller houses like somebody is taking a house 20 lakh loan he should be given a concessional rate larger loan of one crore two crores you charge more no harm but it's a secure loan there it can help the economy because it creates employment right steel cement all kind of uh necessities are used for the house construction so it helps the economy but instead of that if you are giving large corporate loans that is not going to create employment the third thing is that the long-term finance that has to be addressed by the development financial institution now they have started on but not operating very well so far we need more development financial institution especially say large credit for food processing that there be a separate bank ms me should be the original role it is not playing right idbf was converted into a bank so that place has to be occupied by another development financial institution housing hgfc was for a housing finance alone right conducted due to the bank right now both are merged also so it's a normal commercial bank so who is going to take care of the housing demands you require a development financial institution because that those loans are for 15 years 20 years even the commercial banks are giving that because there the security is so strong the house is there but then for the msm is you have to create an atmosphere adequate support has to be given subsidized credit needs to be given subsidies need to be given infrastructure support has to be given concessional rate of electricity should be given then only the msm is can flourish the entire ecosystem yes and that can create much more employment so that is one finally the interest rate which is being used in the country it was controlled by rba earlier now they have left it to the freedom of the banks so unless that control is brought in today you are giving lesser interest for the depositors it is the depositors whose money is being lent and without that banks cannot serve right if one fine day every depositor decides that there is no adequate income and this bank may give back me money which may not if that faith in the system is getting reduced it got reduced by the demonetization further it got reduced during the introduction of the frda will financial resolution and the positons will people started withdrawing like that if with some of these articles coming if people lose the faith in the system and start withdrawing then the system can collapse we were giving at one point of time 16 percent interest that did not affect the bank that time so why not we kill small depositors higher rate of interest and use that money for appropriate purposes which is the priority now priority sector itself has been reduced to a margin the government's role the rba role should be to build up the economy for which you have to channelize credit that was the original purpose of nationalization now everything is free which is what mr garg's article also points out exactly you're not channeling credit you are giving personal loans and that might not be very good very healthy for the economy in the longer yes all right mr fango thanks very much for joining us thank you very much