TO STEP CAU­TIOUSLY

Assocham Bulletin - - FINANCE -

For­mer RBI Deputy Gov­er­nor, Mr. S. S. Mun­dra ex­pressed se­ri­ous con­cernsover banks in­creas­ingly shift­ing their fo­cus to re­tail loans from cor­po­rate loans and warned bankers that re­tail loan is not a "nir­vana". "If ev­ery banker is search­ing a nir­vana in re­tail loans then I think a word of calf­tion is needed," said Mr. Mun­dra while in­au­gu­rat­ing the ASSOCHAM Banker­sBor­row­ers Busi­ness Meet­ing at New Delhi.

Over ex­po­sure of the bank­ing sys­tem to large cor­po­rates and the con­se­quences thereof in the last few years has made the bankers shift fo­cus. But mov­ing to re­tail loans is not the only so­lu­tion as re­tail loans are not pro­duc­tive loans in the hands of the bor­rower as they nei­ther gen­er­ate in­come nor they lead to fur­ther eco­nomic ac­tiv­i­ties.

"There is a limit to which the en­tire bank­ing in­dus­try could re­main fo­cus on in­di­vid­ual loans or con­sumer loans. Con­sumer loans can be mean­ing­ful if the peo­ple who are avail­ing those loans are en­gaged in pro­duc­tive ac­tiv­ity and they are able to gen­er­ate in­come which can be used to re­pay those loans," he said.

It is be­ing seen that the trend has now changed from what was ear­lier; two-thirds of the lend­ing book had cor­po­rate loans while one-third was re­tail loans.

"Today, it is re­versed, with one-third is cor­po­rate book and two-thirds are re­tail book. Though this is a shift which has taken in­ter­na­tion­ally, our sys­tem is still a work in progress in this re­gard", he added.

Al­though there is a good

Over­ex­po­sure of the bank­ing sys­tem to large cor­po­rates and the con­se­quences thereof in the last few years has made the bankers shift fo­cus. But mov­ing to re­tail loans is not the only so­lu­tion as re­tail loans are not pro­duc­tive loans in the hands of the bor­rower as they nei­ther gen­er­ate in­come nor they lead to fur­ther eco­nomic ac­tiv­i­ties.

rea­son for this chang­ing trend as banks have seen a good por­tion of their cor­po­rate loan books turn­ing dud in the re­cent years, tak­ing the over­all bad loans close to 12 per­cent of the sys­tem; but still bank­ing sec­tor needs to tread with cau­tion. It is one of the most bad times be­ing seen by the bank­ing in­dus­try, wherein NPAs are on the rise, thereby im­ped­ing the growth in the econ­omy. Fur­ther, pub­lic sec­tor banks are more af­fected than pri­vate sec­tor coun­ter­parts.

He said that one must take note of the first sign of as­set qual­ity prob­lem and it "would be a good idea" that stress in any ac­count should be recog­nised and both the sides sit to­gether and find right so­lu­tion. There should be a timely recog­ni­tion of bad loan prob­lem both by banks and bor­row­ers.

"It would be im­por­tant for all lenders to ac­knowl­edge and ap­pre­ci­ate the fact that NPAs are the re­al­ity ofa busi­ness cy­cle.An ac­count be­com­ing NPA is not a sin and no one should be afraid in telling that the ac­count is tagged an NPA," said Mr. Mun­dra.

He in­formed that in the past few years, ma­jor ini­tia­tives have been taken by the RBI, Govern­ment and the bank­ing in­dus­try to sup­port the MSME sec­tor.

There are an es­ti­mated 48 mil­lion MSMEs in the coun­try which pro­vide em­ploy­ment to 11 crore peo­ple, and con­trib­ute nearly 45 per cent of man­u­fac­tur­ing out­put and around 40 per cent to In­dia's ex­ports.

MSME sec­tor is one of the most im­por­tant ve­hi­cles for in­clu­sive growth, job cre­ation and poverty al­le­vi­a­tion. There is a huge po­ten­tial in this sec­tor which needs to be tapped.

He said that one must take note of the first sign of as­set qual­ity prob­lem and it "would be a good idea" that stress in any ac­count should be recog­nised and both the sides sit to­gether and find right so­lu­tion. There should be a timely recog­ni­tion of bad loan prob­lem both by banks and bor­row­ers.

Light­ing of Lamp By Mr. S. S. Mun­dra, For­mer Deputy Gov­er­nor; Re­serve Bank of In­dia along with Mr. V Vaidyanathan, Ex­ec­u­tive Chair­man, Cap­i­tal First Ltd., Mr. Ashvin Parekh, Man­ag­ing Part­ner; Ashvin Parekh Ad­vi­sory Ser­vices LLP,Mr. De­ba­sish Mal­lick, Deputy Man­ag­ing Di­rec­tor; EXIM Bank & Mr. Jy­oti Prakash Ga­dia, Man­ag­ing Di­rec­tor; Resur­gent In­dia Lim­ited.

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