‘Banking sector in best health in 50 yrs’
Premium- Corporate India is also healthy at the moment because if only the banks were in good shape but corporates were not, it would have been problematic, according to Kamath
MUMBAI : The Indian banking industry is in its best shape in the last 50 years with regard to asset quality and capital adequacy, said K.V. Kamath, a veteran banker and former chief of ICICI Bank.
“In the more than 50 years that I have been in the banking business, I have never seen their balance sheets as clean as today in terms of bad assets and as healthy as today in terms of bad assets," Kamath, also the chairperson of the National Bank for Financing Infrastructure Development, said at the Mint India Investment Summit 2022.
“Talking about bad assets, to me is passé. It is over," he said.
Kamath narrated how everyone had overestimated the quantum of debt recast needed in the aftermath of the covid-19 pandemic. Kamath headed a five-member panel set up by the Reserve Bank of India (RBI) on 7 August 2020 to recommend eligibility parameters for restructuring stressed loans.
Its recommendations were broadly accepted by the central bank and it was notified that borrowers from 26 sectors would be eligible for debt recast.
Loans worth ₹7.5 trillion or about $100 billion needed recast, the committee estimated after talking to industry groups and rating agencies, he said. However, the total amount of debt recast for large corporates was about 7% of the initial estimate, which is less than $7 billion.
“The reason was that recovery took place at a pace that no one had anticipated. To say that the private sector are laggards and the banking sector is probably not helping them is not right," Kamath said. The government’s ₹5 trillion guaranteed loan programme was handy for small businesses, he said.
Corporate India is also healthy at the moment because if only the banks were in good shape but corporates were not, it would have been problematic, according to Kamath.
MINT PREMIUM See All
“In the year 2000, corporate India ran average debt to equity ratio of 4:1. After the Lehman crisis, that ratio came down to 1.8:1. In the top 200 companies there is hardly any debt," he said.
It is the cashflow-generating capacity of corporate India and their understanding how to proceed in this market that is driving new India, he said.
Banks in India have for the past several quarters seen muted corporate credit growth as companies relied on internal accruals to fund capital expansion, if any. Manufacturing companies will place less reliance on bank debt to expand, Kamath said.
Never miss a story! Stay connected and informed with Mint. Download our App Now!!