Banks have turned risk averse, says HDFC chairman Deepak Parekh

One is hopeful that normalcy will be restored soon and by the time the festive season sets in, says Parekh

A day after Larsen & Toubro (L&T) chairman AM Naik raised concerns of challenging times for the private sector, Housing Development Finance Corporation (HDFC) chairman Deepak Parekh took a similar stand, saying banks have turned risk averse and that there is a distinct slowdown in the economy.

“The challenge today is risk aversion. Banks are reluctant to lend. There has been a flight to safety where a select few, high-rated non-banking financial companies (NBFCs) and housing finance companies (HFCs) have access to funding. But for several others, access to credit has been choked,” said Parekh, while speaking at the annual general meeting of shareholders.

“As a result, a number of NBFCs and HFCs have curtailed disbursements. This, in turn, has had spill-over effects into a number of other sectors,” he said. 

“One is hopeful that normalcy will be restored soon and by the time the festive season sets in, some of the risk averseness should taper off. To my mind, what is critical is re-instilling the confidence of lenders to support growth in the economy,” he said. 

“Evidently, there has been a distinct slowdown in the economy which was reflected in a lower GDP growth of 6.8 per cent in FY19. While there has been an across-the-board slowdown in consumption, given the inherent demand and low penetration levels, I do believe this is temporary in nature,” Parekh said.

On Thursday, L&T’s Naik had said India’s GDP growth will be 6.5 per cent this year, and accelerated spending is unlikely to happen in the next 18 months. 

“Growth is going to be not more than 6.5 per cent this year. My feeling is that though they (government) claim it is 7 per cent plus, if we can maintain 6.5 per cent, we will be lucky,” said Naik at the company’s annual general meeting. “I think the government knows the economy is slowing,” he added.

Another senior leader of India Inc, Bajaj Group chairman Rahul Bajaj had also echoed a similar sentiment. “There is no demand and no private investment, so where will the growth come from? It doesn’t fall from the heavens. The auto industry is going through a very difficult period. Cars, commercial vehicles, and two-wheelers are going through a rough patch,” Bajaj had told Bajaj Auto shareholders in Pune last week.

“The government may or may not be saying this but there are clear-cut markings from the International Monetary Fund (IMF) and the World Bank, which shows a decrease in growth in the last three-to-four years. Like any government, they would like to put up a happy face, but reality is reality,” Bajaj had said.