India’s top bankers on Thursday shrugged off the tag of being risk-averse and said they were practising prudent banking, and the tepid credit growth was a direct fallout of the slowdown in demand. The view was consistent for public and private sector bankers who were willing to lend to good customers and did not want a repeat of the last cycle of binge-lending that led to a surge in non-performing assets (NPAs).
“This is not risk aversion, but prudent banking. If we lend money, it has to be repaid and if banks lend now we might be later told that it was imprudent on our part," Aditya Puri, managing director and chief executive officer, HDFC Bank, said at a webinar hosted by Business Standard. Banks will see a spike in bad loans because of covid-19-related disruptions, but will be able to tide over the crisis, Puri added.
HDFC Bank has already made provisions on a conservative basis and will look to leave behind a covid-proof balance sheet as he steps down in October.
“There will be some uptick but not a disastrous rise in NPA. At HDFC Bank, my legacy will be to leave behind a covid-proof balance sheet for HDFC Bank," he said.
Puri also defended the bank’s stance to be prudent in lending. Customers have been impacted by the pandemic, but the bank will work towards getting the money back, he added. Remaining overly risk-averse may seem to be a measure of self-immunization, but it will be self-defeating as it will affect the bottom lines adversely, said Reserve Bank of India governor Shaktikanta Das. “Risk propensity should be in alignment with the individual bank’s measured risk-appetite."
Bankers said low credit growth was not because they were chasing better customers, but because not many wanted to borrow. Between 27 March and 31 July, outstanding credit shrunk by ₹1.06 trillion, while investments by banks in central and state government securities rose by ₹5.9 trillion, shows RBI data. However, non-food credit grew 5.2% year-on-year to ₹101.87 trillion as on 31 July.
“Maybe, the governor is echoing the sentiment that the banking system is not lending at the pace it was lending earlier. It is a very common observation, but the fact is that there is growth and, in many areas, demand for credit is not very high," said Rajnish Kumar, chairman, SBI.
Lenders have been highlighting supply-side issues and one has to note the level of investment in the economy for a fair assessment, Kumar said. “How many projects have come up which need money?"
SBI does not expect many debt recast requests from India Inc. considering that most large stressed assets have already gone through several rounds of clean-up. Instead, the bank is preparing to deal with the expected volume of personal loan recast requests, Kumar added.
SBI’s loan book comprises 36.7% retail and 39.7% corporate accounts.
The retail personal loan book stood at ₹7.48 trillion as on 30 June, while the corporate book was at ₹8.09 trillion. “I can say that a lot of deleveraging, resolution, clean -up has already happened for corporates and lot of accounts were dealt with under the existing 7 June circular.
As of now, there are not many debt recast request and I hope not many requests will coming forward."
Some recast requests will come from individuals and the bank is readying itself “for dealing with the volume as far as personal segment is concerned."
Gopika Gopakumar contributed to this story.
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