Lending to labour-intensive sectors tightened
Banks are tightening their lending norms for some labour-intensive sectors. Particularly those at the lower end of mechanisation.
The data from the Reserve Bank of India (RBI) shows a sharp fall in growth of loan dues for tea, textiles, glass, and gems & jewellery sectors.
For tea, year-on-year, this growth fell from 32 per cent in 2017 to 3 per cent in 2019. Textiles (which includes) went from 7.6 per cent growth in 2017 to a fall of 5.4 per cent in 2019. For gems and jewellery, from 0.7 per cent growth to a 11.1 per cent fall.
With most also under-performing in these sectors, it's a bit of a vicious cycle. A tea company owner said, “It’s a disaster; banks are just not lending.”
Adding, “Except a handful, most companies are under severe stress from stagnating prices and escalating cost. Between Assam and North Bengal, scores of tea gardens are up for sale, but there are hardly any buyers.”
For jute, many banks are now seeking original deeds in the names of owners. Difficult, as mills have changed hands several times over the years and few have original deeds. Most jute mill lands are still in the name of companies established in the 1950s and have changed hands many times. Banks are refusing to accept registered documents and want the company that is running the mills to have clear title, said Sanjay Kajaria, former chairman of the Indian Jute Mills Association and a mill owner.
The government of West Bengal needs to allow approval and clearance for regularisation of land title, so that jute mills can mortgage the land for securing working capital loans from banks and financial institutions.
Bachhraj Bamalwa, partner in the jewellery firm of Nemichand Bamalwa, says banks have been reluctant to extend credit to the sector for quite some time, identifying it as a high-risk one after the Nirav Modi loan scam.
The proprietor of a leather processing unit says banks have been slow in lending to his sector for quite some time.
Bankers have their reasons. Typically, these are labour-intensive companies, with low mechanisation, and are financially weak. They are not meeting (our) lending norms, said the head of a public sector lender. Most players in the sectors are proprietorship or partnership firms. Banks are more comfortable dealing with corporate entities.
Another head of a public sector bank said, “Overall, there is a slowdown. And, no new promoters are coming in tea, textiles, etc. The industry is complaining that labour laws are not conducive for growth and that we are losing market share to countries like Bangladesh in sectors like textiles. Also, in a sector like tea, when one big company faces problems, it is indicative of the fact that the whole industry is under stress.”
Says another public sector banker, “There is not much demand in sectors which earlier accounted for major credit. However, banks are not at all shying away from lending.”