“Kicking the can down the road will not help. It (restructuring) will make the problem only worse,” says Mr Amitabh Chaudhry, Managing Director & CEO, Axis Bank.
“Banks need internal reforms also. They need to reach out to the unbanked as they struggle to grow with the existing customers,” says Mr Chandra Shekhar Ghosh, Managing Director & CEO, Bandhan Bank.
“Before reforming the financial sector, reform the real sector first. Do not put the cart before the horse,” says Mr Hemant Kanoria, Chairman, Srei Infrastructure Finance Limited.
They were speaking at the 47th National Management Convention of All India Management Association (AIMA).
According the Mr Chaudhary, the functioning of the public sector banks has not changed even after consolidation or reduction in government holding, and they still have to carry the government agenda. “The final solution is that the government should not own banks. To really reform the financial sector, go the whole hog,” he says.
Mr Chaudhary also warns that the government may not offer another stimulus package at all and the banks have to solve their problems themselves. The banks that have not raised capital or that cannot get refinance from other banks will struggle, he says.
Mr Ghosh says that banking has become challenging because the depositors say that the interest rates are low and the borrowers say that the interest rates are high, and the courts have intervened in the pricing of outstanding loans. “There is a need to balance the interests of depositors, lenders and borrowers,” he says.
Credit growth is in the rural areas and big banks need to develop a different cadre for that market because MBAs are of little help there, according to Mr Ghosh. “In the rural areas people have money but not the banking services,” he says, adding that if rural people could have credit, they would consume more. “Lending in rural areas is not a charity,” says Mr Ghosh, and asks the regulator and the banks to change their mindset.
Mr Kanoria argues that solving the problems of the real economy will automatically solve the problems of the banking and the financial sector. “Financial reforms without real sector reforms will lead to further NPAs,” he says. He emphasizes that the liquidity of NBFCs will not improve unless infrastructure companies and MSMEs make money.
“Interest rate cuts will have no impact on credit offtake because the borrowers who need more money will not get it at low rates, especially when borrowers do not have the cashflow to pay back,” says Mr Kanoria. He argues for a commercial settlement between the borrower and the lender to clean the slate instead of relying on a regulatory prescription. He points out that bank lending under the credit guarantee scheme is slow and for the next one and a half years, no dramatic improvement can be expected in MSMEs’ liquidity.
Mr Kanoria also argued for the release of the Rs 8 lakh crore of infrastructure contractors that are stuck with the government. “If the government releases that money, the borrowers can pay back the bankers and bankers can lend more,” he says, adding that if the government does not have the money, it can issue bonds to pay the contractors.
Mr Chaudhary compliments RBI for imposing additional provisioning on banks for restructuring loans, but he is not excited by inclusion of startups in the priority sector lending category. He says that not all banks want to lend to startups as they do not want to lose the principal amount.