Con­fer­ence Re­port Assocham .......

ASSOCHAM or­ga­nized the 4th Na­tional Sum­mit on Bankers Bor­row­ers Busi­ness Meet with the theme ‘Com­ing Of Age: Chang­ing Con­tours Of Re­la­tion­ship Be­tween Bankers And Bor­row­ers’ in Mum­bai re­cently. High­lights of the de­lib­er­a­tions at the meet:

Banking Frontiers - - Highlights - Manoj@bank­ingfron­

V. Vaidyanathan, Exec Chair­man, Cap­i­tal First: Of the to­tal com­mer­cial bor­row­ing of `54 tril­lion, large cor­po­rate bor­row­ing is `25 tril­lion, SME is `10 tril­lion, re­tail is `12.5 tril­lion and mi­cro en­ter­prises is `5.5 tril­lion. Let us look at SME NPAs. For PSU banks, SME NPA is 22% and for mi­cro-SMEs it is 11%. It is lower for pri­vate banks and NBFCs. The NPA for mi­cro en­trepreneurs is the low­est. What is chang­ing re­cently is that the con­ver­sa­tion from most play­ers in the in­dus­try is about re­tailiza­tion of their loan book, ie lend­ing to the mid­dle class of the coun­try. What are the fac­tors en­abling this change? One is the push from the reg­u­la­tors. The cen­tral gov­ern­ment is also push­ing for lend­ing to en­trepreneurs. Close to `4.6 tril­lion of Mu­dra loans have been dis­bursed, of which 76% are to women. Some 10 years ago, lend­ing against in­come tax re­turns was the norm. That is now chang­ing. There is ac­cess to bureau records and GST data. Fo­cus is more on cash flow and less on bal­ance sheet. A lender in Africa is look­ing at con­tact data and say­ing that more than 50 con­tacts is a pos­i­tive in­di­ca­tor. Sim­i­larly, talk­ing to same 4 peo­ple every day was con­sid­ered pos­i­tively. There are 2 types of fin­tech lenders – with bal­ance sheet and with­out bal­ance sheet. Re­tail lend­ing as a per­cent­age of non-food credit has in­creased from 20% to 25% in 3 years. Re­tail as a per­cent­age of in­cre­men­tal lend­ing has shot up. RBI should con­tinue to in­crease the num­ber of play­ers in this sec­tor.

Ashvin Parekh, Man­ag­ing Part­ner, Ashvin Parekh Ad­vi­sory Ser­vices: Tru­ism from the NPA cri­sis that has emerged is that lenders and bor­row­ers should have been more re­spon­si­ble. So, the re­la­tion­ship needs to be strength­ened. House­hold sav­ings used to be the main source of funds for banks. No longer it is so. Funds have shifted to the mu­tual funds mar­ket. When that hap­pens, the in­vestor is tak­ing a huge mar­ket risk. Thanks to NCLT and IBC, bankers and bor­rower have to rec­og­nize, ad­mit and start mak­ing cor­rec­tions much more in ad­vance.

De­ba­sish Mal­lick, Dy MD, EXIM Bank: Mu­tual funds are get­ting more money than bank de­posits. So, banks will have to look at al­ter­na­tives. Banks are also fac­ing com­pe­ti­tion in get­ting cus­tomers and as­set cre­ation. Cor­po­rate sec­tor is sud­denly not look­ing as good enough to lend to. Re­fi­nance agency like Mu­dra has the com­fort that it will get its money back from the bank. This may not be sus­tain­able for banks and may im­pact the re­la­tion­ship be­tween the bank and the re­fi­nance agency. There are is­sues in re­tail lend­ing. Re­tail is a de­rived sec­tor. It gen­er­ates cash flow from trade, com­merce and in­dus­try, and if these sec­tors stul­tify be­cause of short­age of credit, I do not know if re­tail will be a sus­tain­able sec­tor. SME sec­tor has shown not to be able to sus­tain on its own in the time of a re­ces­sion. Some cor­po­rate have shown this ca­pa­bil­ity.

Two new fac­tors are chang­ing lend­ing – KYC norms and cap­i­tal ad­e­quacy norms. In trade fi­nance, I am see­ing a dif­fi­cult sit­u­a­tion due to tight KYC norms. Due to non-rated lenders or low rated lenders, there is higher cap­i­tal al­lo­ca­tion for re­fi­nance com­pa­nies, which is hurt­ing flow of funds to them.

Bot­tom­line is, what is good to­day may not be good tomorrow. No course should be fixed and fi­nal.

S.S. Mun­dra, for Deputy Gov­er­nor, RBI: If we look at the chang­ing con­tours and shifts, one thing that is clear is that both sides have more choices – bor­row­ers and lenders. Even within banks, there is a new breed – small fi­nance banks and NBFCs. The for­mer is be­gin­ning to make a dif­fer­ence and the lat­ter has al­ready made an im­pact. Also, there is pri­vate eq­uity, ven­ture cap­i­tal, etc. Sim­i­larly, banks are mov­ing to­wards re­tail.

Even for in­ter­na­tional banks, it used to be 2/3 cor­po­rate book and 1/3 re­tail book. This has re­versed and is hap­pen­ing in In­dia as well. If every banker is search­ing for nir­vana in re­tail, then I must cau­tion. The bank-bor­rower link will not be­come ir­rel­e­vant in the near fu­ture.

An­other shift is that bor­row­ers are look­ing for holis­tic so­lu­tions. Banks can also play match-mak­ers and sup­port it with credit.

There is in­creas­ing de­mand and adop­tion of tech­nol­ogy and dig­i­ti­za­tion. Dig­i­tal is for sim­ple so­lu­tions and phys­i­cal for com­plex ones. So, any lend­ing has to be high tech and high touch.

For users, tech­nol­ogy is a great en­abler, and they must mi­grate with cau­tion. Lala­jimu­nimji syn­drome is that bank­ing with tech is an in thing, but In­dian sys­tem has a dif­fer­ent psy­che. So Lalaji won’t op­er­ate him­self, but the oper­at­ing part is left to Mu­nimji.

If a bank is in­tro­duc­ing too many prod­ucts at too high a speed, it will con­fuse both cus­tomers and em­ploy­ees. So the pace must be care­fully cal­i­brated.

Out­sourc­ing credit pro­cess­ing com­pletely is not good.

I have been us­ing 2 cliches about lever­age. Lever­age should be like blood pres­sure in our body – it should nei­ther be too low nor too high. Sim­i­larly, oper­at­ing on thin eq­uity is like skat­ing on thin ice… you can fall and break your limb. Look­ing at the last few years, I have dis­cov­ered a new kind of cloud com­put­ing. This is that you have 1 unit of eq­uity sit­ting in the cloud. It starts trick­ling down and starts get­ting com­pounded at geo­met­ric rate, ie it be­comes 2 and then 4 and then 8 and then 16 and then be­comes 32 by the time it reaches the ground.

For both bankers and bor­row­ers, post­pon­ing the so­lu­tion to a prob­lem only com­pounds the prob­lem. NPAs are a re­al­ity of a busi­ness cy­cle and should be un­der­stood as such.

Su­tras for suc­cess: Bankers should say no to a busi­ness they do not un­der­stand. Bor­row­ers should avoid rapid ex­pan­sion and un­re­lated di­ver­si­fi­ca­tion. The time du­ra­tion be­tween sun­rise and sun­set has shrunk; the life­time of a busi­ness has be­come shorter. Mis-sell­ing and im­pul­sive buy­ing are sins. Pay at­ten­tion to the components of the credit rat­ing, not just the fi­nal out­come. Con­serve cap­i­tal dur­ing good days for the stress­ful days.

Jy­oti Prakash Ga­dia, MD, Resur­gent In­dia: All in­for­mal sources of money have dried out and with GST com­ing in. Now, for­mal sources of money are re­quired. The bank­ing sys­tem has or­ga­nized in such a way that bad credit should not hap­pen. But it is time that the sys­tem should not turn away good credit. There should be a dif­fer­en­ti­a­tion in declar­ing NPA (90 day de­fault) on the ba­sis of the ex­tent of the col­lat­eral.

Around 80% of SMEs be­long to 42 in­dus­tries. The banks ask for in­dus­try fore­cast and how can the SME pos­si­bly give a fore­cast about things such as in­jec­tion mould­ing ma­chines? So, for these in­dus­tries, there should be a stan­dard­ized in­dus­try re­port. Also, there is no stan­dard­iza­tion for loans to ser­vice sec­tor.

Rajat Bahl, CEO, Brick­works So­lu­tions: In rat­ings, the most im­por­tant is the fi­nan­cials of the com­pany and its credit his­tory. Apart from these, we are look­ing at other sources of data. SME bor­row­ers typ­i­cally have ac­cess to other sources of funds for pay­ing back loans, and thus their NPAs tend to be lower than cal­cu­lated. The ad­di­tion of lots of bor­row­ers who have been rated has re­duced the me­dian rat­ing. How­ever, only a third of the bor­row­ers were re­new­ing the rat­ings, as they got the 25 ba­sis point ben­e­fit. Then, the gov­ern­ment gave a sub­sidy for rat­ing, which led to an­other round of rat­ings. But the cul­ture of rat­ing never got built up. We are propos­ing to banks that every time an SME gets a rat­ing im­prove­ment, the bank should give some ben­e­fit to the bor­rower. That way we hope to im­prove the cul­ture of credit rat­ing.

A panel dis­cus­sion in progress at the sum­mit

Pan­elists lis­ten­ing to a pre­sen­ta­tion

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