India Inc. will need to overcome risk aversion and start investing if the economy has to pick up, said State Bank of India (SBI) chairman Rajnish Kumar. Speaking at the Confederation of Indian Industries (CII) Annual Session 2020 on Tuesday, he said banks were flush with funds but corporates are not coming forward to borrow.
“Is risk aversion only among lenders? Is there risk aversion among borrowers also? Are they willing to invest? Are they willing to leverage?" asked Kumar. “As the chairman of the largest bank, I’m saying I have the money, but there are no takers."
Brushing off criticism that banks have been parking ₹7 trillion with the Reserve Bank of India (RBI), Kumar clarified that there was no correlation between this and risk aversion among lenders. SBI, for instance, received as much as ₹2 trillion worth deposits in April and had to lend to the RBI under the reverse repo window, as there were not many avenues for lending.
Kumar said corporates should look at opportunities for investment, and should not wait for the government to further support the industry. He said the government does not have enough fiscal space and is currently focused on supporting the bottom of the pyramid, which has been worst affected by the covid-19 crisis.
The government has already announced a ₹20 trillion stimulus package under the Atmanirbhar Bharat Abhiyan. This current fiscal year is also going to see a sharp rise in the gross borrowing programme to ₹12 trillion against the budgeted ₹7.8 trillion. Half of this is expected to be raised by the end of September. Economists expect the fiscal deficit to cross 6.4% in fiscal year 2021, compared to 4.6% of gross domestic product in FY20.
Kumar said corporate investments have not picked up despite the government’s effort to open up new sectors and reduce corporate tax rate to 22% last year.
However, he was bullish on the recent measures by the government to infuse nearly ₹3 trillion into the system by way of guarantees to banks against loans to micro, small and medium enterprises (MSMEs). SBI has disbursed as much as ₹22,000 crore to MSMEs under the scheme, he added. He also stressed the bank’s move to provide a liquidity line worth ₹90,000 crore to fund-starved electricity distribution companies through financial institutions.
On the recapitalization of public sector banks, Kumar said the government would have to assess the situation depending on the requirement for each bank, risk capital and provisioning required for each bank, and it will also depend on the demand for growth. The government has already infused ₹3.5 trillion into public sector banks over the past few years.
Foreign brokerage firm Credit Suisse in a report said Indian banks may need to raise $20 billion in capital over the next one year. It estimates private sector banks to raise $7 billion worth of capital and public sector banks may require $13 billion worth of recapitalization.
Speaking on the asset quality of the banking sector, Kumar said while there was uncertainty around the future, it was not a doomsday prediction when it comes to the potential non-performing assets (NPA) in the system. It depends on each bank’s lending practices and risk assessment that will determine the NPA status. India’s banks are currently saddled with bad loans of more than ₹9.5 trillion, according to RBI data.
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