Public sector banks' lending to state govt units down 20% in FY23

Lending by public-sector banks (PSBs) to entities owned by state governments and Union Territories (UTs) declined about 20 per cent year-on-year in FY23 on the back of continuous growth for four years.

The moderation in lending follows the Reserve Bank of India’s missive to lenders for not doing enough due diligence and monitoring the end use of funds.

The lending moderated to Rs 4.12 trillion in FY23 from Rs 4.93 trillion in FY22, Rs 2.51 trillion in FY19, Rs 3.11 trillion in FY20, and Rs 3.98 trillion in FY21, according to Parliamentary Questions and Answers data (Lok Sabha) on Outstanding Debt of States and UTs.

Of the 12 PSBs, 10 scaled down lending to entities owned by states and UTs. Only two banks –- Canara Bank and Central Bank of India -- increased their exposure in FY23.

In June 2022, the RBI flagged a violation of prudential norms by commercial banks’ lending to companies owned by states and UTs. It had flagged breaches of rules for assessment of commercial viability, ascertainment of revenue streams for debt-servicing obligations, and monitoring of the end use of funds.

The RBI had asked lenders to carry out due diligence on the viability and bankability of the projects. This was to ensure that revenue streams from the project were sufficient to take care of the debt-servicing obligations and that the repayment/servicing of debt did not come from budgetary resources.

According to Parliamentary data, Canara Bank scaled up loan disbursements to Rs 1.87 trillion in FY23 from Rs 1.69 trillion in FY22 and Central Bank of India’s disbursements grew from Rs 1,475 crore in FY22 to Rs 3,949 crore in FY23.  

Of the banks that reduced loans to entities owned by states and UTs, State Bank of India’s disbursements declined to Rs 66,523 crore in FY23 from Rs 81,735 crore in FY22. Punjab National Bank’s disbursements reduced from Rs 96,395 crore in FY23 to Rs 70,142 crore in FY22, the data showed.

TRACKING THE TREND

PSB loans to entities owned by states, UTs

Amount in Rs  trillion

FY19      2.51

FY20      3.11

FY21      3.98

FY22      4.93

FY23      4.12

Source: Lok Sabha Questions and Answers