FIBAC 2021: India Inc spoilt for choice as funding avenues open up

Panelists at FIBAC say banks lose monopoly of being only source of funding to firms

Companies are increasingly becoming demanding seeking services and pricing, irrespective of their sizes, as banks lose the monopoly of being the only source of funding to firms, senior bankers discussed at the Day 2 of FIBAC 2021. 

“The corporates are now spoilt for choice. Banks, NBFCs, markets, and even private equity, everyone is willing to lend to corporates. And as the economy grows, the avenues are all going to expand,” said Ashwani Bhatia, managing director for corporate banking and global markets at State Bank of India.

Earlier, the large companies had this power, but increasingly medium-sized and even smaller companies are negotiating hard, the panelists said. This is a big change in the corporate lending environment in India, the panelists said.

Banks, as entities that lend using their balance sheet, must get a way to find a seat amidst the non-balance sheet lenders, said K V S Manian, whole-time director and group president, corporate banking, Kotak Mahindra Bank.

“The clients are increasingly becoming more sophisticated and are always very, very demanding,” said K Balasubramanian, managing director and head of corporate banking group, South Asia, at Citi.

“If you look at the last three, four, or five years, this is not actually restricted only to the top clients but is straddling the entire line. Even the mid-market and the smaller clients are way more sophisticated. They are basically looking at banks for solutions and not for profits," Balasubramanian said. The solutions, too, are case-specific and banks have to now offer those, making customer engagement plans “extremely challenging.” The firms have become “very, very price-conscious”, but willing to give concessions for better quality advice. 

Bankers agreed that talent is becoming the real differentiators, and the banking industry is leaning more towards specialists. 

Rajiv Anand, deputy managing director-designate at Axis Bank, said traditionally, banks have looked at the balance sheet growth and, over the years, have given away the “creamier part particularly to the foreign banks”. 

However, the specific advantages the foreign banks had 15-20 years ago, in terms of technology and talent, is no longer their exclusive.

In the Indian context, “larger corporates want to consolidate their relationships with four or five banks, which the current account circular (by the RBI) is only exacerbating,” said Anand. 

“As corporate banking gets increasingly consolidated, the balance sheet providers are now asking for other parts of the business,” Anand said.

The key to retail clients here is relationships, something that banks are increasingly stressing upon. 

Bhatia of SBI said that while some relationships are moving out of banks for alternate channels, it is also perhaps good for the banking system as a whole. “Whether the money moves to the bond market or to credit funds etc., it's also exactly good for the banking system because finally, the risk doesn't have to reside with the banks only,” Bhatia said. 

But banks are not going to lose the edge as firms still prefer banks over other channels to discuss loan proposals, bankers said.

This is especially true in the case of infrastructure where the companies have become much stronger, while the long term debt market opens up to infra finance as well.

KV S Manian said it is also time that banks focus on infrastructure financing. “We will hopefully see more infrastructure financing happen in the next few years, which will help us meet our overall infrastructure development aspirations for the country,” Manian said.

The panel was moderated by Prateek Roongta, managing director and partner at BCG, who also presented a paper on what the companies want from banks now and how to go about it.