Government needs to nurture the green shoots, say bankers

Say the pace would really pick up as and when the govt started awarding big-ticket contracts

The Indian economy has started showing signs of recovery, and demand from retail customers, small and medium enterprises and the mining sector is growing, said the country's top bankers at the Business Standard Banking Round Table on Tuesday. But the pace would really pick up as and when the government started awarding big-ticket contracts, they said.

Bankers said they were ready to fund future growth but added that the environment should be more conducive for big proposals to come forward. "What we are waiting for is a revival in big investments. While the private sector is completing ongoing projects, the bigger investment push will come from government spends," said Chanda Kochhar, managing director and chief executive officer (CEO), of the country's largest private sector lender, ICICI Bank. She said with a good pick-up in highway projects, the next round of push will come in the railways and then from defence.

 

"Credit growth, too, is consistent with a stable economy," said Aditya Puri, managing director and CEO of HDFC Bank. He said if loans from mutual funds and commercial paper were included, credit growth rate could easily touch 12-14 per cent, instead of the flattish 10 per cent that gets reported from the banking system.

"The banking sector is definitely not a constraint (when it comes to lending)," Puri said, but added that there were "fundamental issues outside the banking sector, which need to be resolved and there is no point expecting the banking sector to lead a recovery".

Even as local incorporation remained an issue of negotiation with the banking regulator, foreign banks are committed to India and will continue to be so. If the regulators so demand that local incorporation is a must, they will have no other way but to oblige, said Citi India CEO Pramit Jhaveri and Deutsche Bank India CEO Ravneet Gill.

"We need to assess the overall commitment in terms of balance sheet and capital, if foreign banks are reducing that in India.

The answer is that the commitment remains undiminished," said Gill.

It could be a generalisation to say that large Indian companies are stressed, but there are pockets of stress. "The only solution for these pockets of trouble is some hard decisions, a lot of pain and the passage of time. These are three things you have to deal with," Jhaveri said.

But eventually, it all boils down to the economy, said bankers. "We didn't think four years back that the economy would not do well over the next four years. Banking is a reflection of the economy. If the economy is not doing well, how can we do well?" said Arun Tiwari, chairman and managing director, Union Bank of India.

There is no shortage of capital for the banking sector, but consolidation is inevitable.

"Tough decisions will have to be taken and will be taken, otherwise the economy will not grow," said Puri, adding, there will be consolidation in the bottom 25-30 per cent of banking laggards, who have never made money.

But the existing banks are in no way under pressure from new entrants that tout technology as the new differentiator. Technology, after all, is an enabler that can change business model and not the business itself, they said.

"Let us worry about what is happening in technology rather than getting worried about few forms of entities, because irrespective of different forms of entities coming up or not, technology is enabling things to happen and technology will change the way we all do businesses. What has disrupted is business models, not businesses," said Kochhar.