We are not risk-averse, but only careful and prudent, say bank CEOs

Most bankers who participated in the Business Standard Unlock BFSI 2.0 webinar event held on Thursday felt that they expect better indicators of the economy in the third quarter of the financial year

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Indian banking sector | Indian Economy | Shaktikanta Das

Top bank executives on Thursday attempted to shed the tag of being risk-averse and said that viable businesses that bring in some level of equity will get the red-carpet treatment from lenders.

Most bankers who participated in the Business Standard Unlock BFSI 2.0 webinar event felt it was early to predict the economic recovery curve at this point in time and better indicators would be visible from the third quarter of the fiscal year, when the festive season kicks in.

“I don’t know why there was a feeling that we are risk-averse. Banks are eager to lend to good projects with sufficient certainty of cash flows, and when we get the confidence that the borrower is competent and has capital, we do lend. You cannot blame only the bankers for this,” Union Bank MD and CEO Rajkiran Rai G said during a panel discussion of six leading bankers from the public and private sector.

He added that the official credit growth figures do not reflect the conservative approach of bankers, as the system is witnessing lower utilisation of sanctioned loans due to lack of demand, which is not accounted for in the numbers.

Axis Bank MD and CEO Amitabh Chaudhry had no qualms in saying that the bank was “quite comfortable in adopting a conservative approach towards growth” but wanted the corporate world to show adequate equity while borrowing money from financial institutions.

“If you really expect the economy to bounce back, people to start spending money and the banking system to start lending, I think you need to see more capital and more spending by the government,” Chaudhry said. “If Indian promoters and individuals want us to lend money, we would like them to put some of the money upfront also.”

Earlier at the event, Reserve Bank of India Governor Shaktikanta Das had said that being overly risk-averse “will be self-defeating” in a changing environment and will not help banks “win their bread”.

However, the principle challenge for banks has been a lack of demand in the economy, both in terms of working capital and capital expenditure loans, rather than being “extremely” risk-averse, CITI India CEO Ashu Khullar said, describing the current economic situation as “complicated”.

“There are some recoveries (in economic activities), but we are clearly far from getting back to normal times. I think we will have to wait and watch,” Khullar said. “To me, ultimately, this is a health crisis and till we overcome that, we will have a little bit of friction before we come back to normal.”

IDFC First Bank Chief V Vaidyanathan struck a more optimistic note, though he said that the financial system will be able to fully examine the extent of the crisis only by March 2021. “Earlier, when we were trying to estimate the impact of Covid, we felt this was going to be a washout year, ie the book was not going to grow. But after the last two-three months, our take is that what was estimated as zero growth for the year will be 15 per cent growth when it comes to retail loans,” he said.

Punjab National Bank MD and CEO S S Mallikarjuna Rao said that he expected the festival season to be a “wonderful opportunity” for some capital-intensive industries, even as tourism, aviation and hospitality will take longer to bounce back. “The third quarter will give us a better sense of how we will go about with restructuring (of loans),” he added.

On the loan moratorium, IDBI Bank MD and CEO Rakesh Sharma said that the number of borrowers who have availed of this facility should not be a parameter for examining the books of lenders. “Based on the number of moratorium, we should not judge the quality of the banks’ balance sheets. We should see how the securities are backed and look at the credit score of borrowers. The position is changing regularly as people are withdrawing from moratorium every day,” he said, adding that he expects 4-5 per cent of the bank’s borrowers to go for restructuring of loans — a dispensation given by the RBI.

PNB’s Rao sounded an alarm on the low savings rate offered to customers in view of a particularly low inflation rate that has pushed interest rates down. “If the savings rate goes below 3 per cent, it is an alarming situation. Banks are driven to offer this rate because of the asset-liabilities mismatch. The better proposition would be that inflation is a bit higher,” he said.

Union Bank’s Rai concurred with Rao and hoped this was a “temporary phase”. He urged the RBI to relax the capital buffer norms required to be maintained under the globally-accepted Basel-III framework to help banks tide over the crisis.