Mispricing of risks a concern given there is ample liquidity : SBI chairman

Country's largest lender State Bank of India (SBI), the country's largest lender, Friday said that mispricing of risks is a cause of concern given the fact that there is ample liquidity in the system.

Since deposits are flowing into the system and credit offtake is yet to take place, bankers may be tempted to make investments in alternative avenues like T-Bills, SBI chairman Dinesh Kr Khara said at a webinar organised by Bengal Chamber of Commerce and Industry.

"The depth of this alternative investment market is shallow. There is a chance of mispricing of risks. But I feel there will be no compromise on underwriting standards as the banking system has learned the hard way due to huge NPAs," he said.

The SBI chairman said there is a need to strike a balance and unless there is improvement in growth, it will be big challenge.

Regarding offtake of credit, the banker said some industrial sectors are showing improvement but it is not universal across sectors.

"I hope the Profit Linked Incentive scheme will help a lot in offtake of liquidity, particularly in the MSME sector. Now some private sector investments are likely to take place besides PSUs. The road sector is looking promising," he stated.

Khara said given the present macroeconomic conditions it is unlikely that the central bank will alter interest rates in the coming Monetary Policy Committee meeting.

The concept of bad bank is good and different from what used to be asset reconstruction companies in the past, he added.

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