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‘We
all are beginning to feel Eight top bankers and the financial sector met at The Business Standard round table to discuss the topic “Can the banking system support India’s growth?” The round table was organised on November 1 in Mumbai. Vinod Rai, secretary, financial sector, Government of India, India; OP Bhatt, chairman, State Bank of India; KV Kamath, MD and CEO, ICICI Bank; Sanjay Nayar, CEO, Citigroup, India; Naina Lal Kidwai, country head, HSBC India; VP Shetty, chairman, IDBI; MBN Rao, CMD, Canara Bank; AK Khandelwal, CMD, Bank of Baroda; and M Balachandran, CMD, Bank of India, brainstormed the issue for two hours. The discussion was moderated by Business Standard’s Tamal Bandyopadhyay. Excerpts: Tamal Bandyopadhyay: Welcome to India’s biggest banking event. India Inc’s capital expenditure has been growing phenomenally – from Rs 38,000 crore in 2002 to Rs 1.1 lakh crore last year. Over the next five years, listed Indian companies plan to invest Rs 9.5 lakh crore. Can the banking system support this demand? Bank credit has been growing at about 30 per cent every year but the Reserve Bank of India wants to rein in this growth as there are signs of overheating in certain pockets. Against this backdrop, we will hear CEOs of the country’s top eight banks, accounting for over 55 per cent of the total banking assets, and a representative from the government which owns 75 per cent of the industry.
Bandyopadhyay: The government is ready to extend all support to keep growth momentum. Let’s hear the bankers. MBN Rao: The GDP is growing at around 8 per cent but the credit-GDP ratio is about 45 per cent compared with 107 per cent in Korea, 126 per cent in Taiwan and much more in China. We need to increase the credit flow. But theconstraint is resources. Last year the incremental credit deposit ratio was 100 per cent. This year the incremental CD ratio has been 95 per cent and surplus liquidity of about Rs 2,07,000 crore by way of excess statutory liquidity ratio has come down to Rs 1,23,000 crore. All these indicate that there is demand for credit offtake but we must find ways to raise resources. The currency with public is growing by about 17 per cent. There is definitely a scope for higher intermediation. We must also explore foreign resources by way of three channels – equity, debt and deposits. Our intermediation cost will come down if we are able to attract foreign funds. M Balachandran: In the ’70s it was a question of reaching out in social banking; in the ’80s it was consolidation and in the ’90s it was an era of growth with reforms... If the growth has to be sustained, we need to look into all the segments of the economy – manufacturing, services, agriculture... There are areas of concerns like long-term resources. This is going to be a big challenge. Indians are traditionally known as savers and we have reasons to hope that the deposit accretion in the banking industry will continue but the importance will be on asset-liability profile. The other issues are skill and technology. Equally important is the risk management of corporations with whom we deal. Then, we need to reach out to rural areas for financial inclusion. Finally, we must have the scale. Sanjay Nayar: I don’t think things are going to be automatic. We are all growing and in our typical way and we can always say that India will keep growing and everything is fine. The biggest problem will come from the supply side. Look at the credit policy. There is a clear signal that the demand side is picking up but the supply side is constrained. We cannot look to the regulator all the time and say, please increase money supply. It is an under-penetrated market. The infrastructure sector alone needs about $180 billion funding in the next three years and the current asset base of the banking industry is just $350 million. To match this, we need long-term funds. In the absence of a robust loan syndication market and corporate bond market, the onus falls on banks. I am pretty sure that we are not at all equipped to fund this kind of growth and have the right asset-liability matching to be able to fund infrastructure. Let us forget about government borrowing, retail under-penetration and all other demands of the banking sector. Infrastructure alone gives you a very telling story of how inadequate is our size. Then look at the fragmentation of the whole sector. It is probably the second most fragmented market after Turkey, which is going to consolidate. We have 88 banks and we need to get the consolidation process going as we do not have the economies of scale. The fragmentation of the sector leads to some very concurrent problems which are not evident but at least I feel that we are beginning to see inadequacy of even the labour supply. We all are beginning to feel the stress of growth. There are huge issues on skill sets and employee turnover. We have always taken an attitude that India is going to happen. I’m sure it will happen but it is time that we move on from this “things will happen” approach to a more concerted approach and have conviction in the interplay of policy regulator and structural changes. The 20th largest bank in China probably has more market capitalisation than the entire banking industry in India. I will stop at that. I thought somebody had to be controversial. HOME Business Standard • November 2006 |
