Loans Sector Has Taken A Big Hit After Note Ban, Say Bank Unions

New Delhi: Union leaders have told News18 that post demonetisation banks will suffer "catastrophic losses" because deposits have increased but advances – or loans that keeps a bank functioning – have fallen down drastically.

C. J. Nandakumar, president of Bank Employees Federation of India, told News18 that banks are reeling under severe financial crisis.

"After the withdrawal of old high denomination notes, there have been an increase in deposits by 15% from the last financial year when it was in single digits but advances have fallen to 5.67% this quarter where it was growing at a rate of 14% earlier. There is no scope of advances now. It might lead to a severe economic crunch which could make the scenario catastrophic," he said.

"Banking staff which were previously designated in several divisions are all working round the clock to exchange old currency and disburse new ones. From where will we sanction loans?" Nandakumar asked.

Nandakumar added the new thrust to go digital or cashless have proven difficult for banks. "Most of the people are now making even smaller payments by cheque which has led banks to clear 3000 to 4000 cheques a month where the previous figure used to hover around 800. Even the small scale sellers who have opted for POS machines often come to banks as they don't get their money. All of this had led to a complete neglect towards the advances sector," he said.

A few bankers feel that demonetization has resulted in not only an increase in deposits but also a sudden settlement of loans which would have otherwise given banks a pathway to make profits.

D. Thomas Franco Rajendra Dev, senior vice-president of All India Bank Officers Confederation, told News18 that agricultural gold loans were majorly settled after November 8 by farmers who got cash from panchayat heads looking to dispose off their large amounts of cash in old currency.

"Agricultural gold loans are a popular thing in the south and other parts of the country. Now, panchayat heads who could not deposit their old currencies in the available bank accounts helped farmers repay all their gold loans with a promise to be paid later, and in this way they dispose off their cash with farmers being indebted to them. This way our advances are reaching a new low, which can be dangerous for the banking sector," Dev said.

"Now we have severe pressure on us to meet the needs of digital banking. SBI till now has 3.5 lakh POS machines and they have been given a target of another 2.5 lakh POS machines till March 2017 which is a very short deadline. Now our staff has been allotted to pursue shopkeepers to pay the rentals for these machines and opt for them. We have no officials left who can undertake the task of sanctioning loans or take care of investments," said Franco.

Though most officials feel the imbalance would continue even during the first quarter post the 2017 financial budget, they were unanimous to blame RBI for their low cash disbursals.

CH Venkatachalam, general secretary, All India Bank Employees Association, told News18 that the situation has only got worse since the last 40 days with RBI not giving them enough cash.

"There have been deposits worth 14 lakh crores and we are giving interests on those accounts without any way to circulate the excess deposit by means of loans. On top of that RBI is not disbursing enough cash," he said.

Nandakumar blamed the "contradictory nature" of RBI circulars which has added to the present woes. "The credibility of RBI is at stake now. They keep changing statements; first they will release figures of disbursed money and alter it after the financial secretary corrects them. This creates a very negative impression about the central bank," he said.

Dev believes that now after 46 days, RBI and the government should at least "release a roadmap" on the future. "Every day our executives are standing in lines in front of the RBI to request them to release extra cash but are often disappointed. If the loans and advances sector does not pick up, it will add to a lot of problems," he said.

Dev feels a big surprise may be in store for the banking sector in the coming few months. "We are anticipating that before the budget is announced, government might announce a plan stating that since banks have a lot of surplus cash, Mudra loans etc. must be increased and this will again create a lot of stress on the entire banking sector," he said.