India’s banking system is in a much better position than in the last cycle and will be able to sustain the current cycle of strong loan growth, State Bank of India (SBI) Chairman Dinesh Kumar Khara said on Wednesday.
Speaking at the 2022 SBI Banking and Economics Conclave, Khara said lessons learned from the last round of strong loan growth, which ultimately led to a huge surge in acidic lending, have been internalized by the banking system.
Banks are no longer just emphasizing capital, Khara said, but are also looking at the color of capital to make sure hybrid debt isn’t masquerading as Tier 1 capital. He pointed out that banks are better placed from a loan underwriting and risk pricing perspective.
In his note, Khara said decision-making is more scientific and banks are also well capitalized now, adding, “The banking system is in a much better position…the growth we are seeing is also sustainable.”
The banking system, which had struggled to push annual growth into double digits for several years, saw credit growth of 17% in the fortnight ending November 4.
Companies are also deleveraged, unlike the last case when their balance sheets had huge loans, Khara pointed out.
There are also changes in the ecosystem that are proving to be of great help to lenders, Khara said, pointing to strengths such as the bankruptcy code, goods and services tax network data, the rating ecosystem and credit bureaus.
The goal is to raise GDP to $40 trillion by 2047, which Khara called “a gigantic task”. The focus is on infrastructure-led growth during this period, he said, adding that its construction requires deep debt markets which are not present in India at present.
Khara said the country’s banks and alternative mechanisms like GIFT City – Gujarat International Finance Tec-City – will have to play an important role in the coming times to help overall growth.
With entries from PTI.