If PSBs can't lend, they should be privatised: Niranjan Hiranandani

If PSBs are not able to do their job, they should be privatized, president Hiranandani

Niranjan Hiranandani, president of realty association National Real Estate Development Council or NAREDCO, feels that the liquidity crisis has strangulated not just the sector but the entire economy. Hiranandani, who is the founder and managing director, Hiranandani Constructions, as well as senior vice-president of Assocham, tells Dilasha Seth that public sector banks (PSBs) should be privatised if they are not able to lend. Edited excerpts:

The economy is struggling to expand at high rates and private investments are muted. Is liquidity to blame for this?

The issue is of lack of liquidity. It is a challenge that we are not able to answer. When we had demonetisation, money went into the banking system. In spite of the fact that bank money has gone up tremendously over the last three years, it has not been given back to the economy or business. Money has gone either into bonds of the Reserve Bank of India (RBI) or into non-banking financial companies (NBFCs). For the last two years, mutual funds and banks gave liberally to NBFCs. Then, we had the IL&FS case, after which they stopped giving to even NBFCs. That compounded the problem. We need liquidity in the economy. Till banks give money or mutual funds give money or the bond market comes up, nothing is happening. We have asked the RBI to intervene, but it says that they are afraid to lend. If PSBs are not able to do their job, they should be privatised.

But RBI has taken an accommodative monetary policy stance to perk up growth. Should the government also follow with an expansionary fiscal policy?

The issue is not of repo rate. It is about excessive funds lying with banks, which should be disbursed into the market. If the money is going to be locked up in the banking system, then there is no point. When it is required by the economy, why don't PSBs lend? They should be closed down and sold to big private banks that have expanded by 30 per cent in this period. An increased competition is needed in the banking space like we had in telecom and airlines.

That will be a medium-term or long-term response to the problem. But what can be done immediately?

The bond market should be created and supported so that corporates don’t have to look to only banks for credit. In the last 7-10 years, there are no banks giving credit for long-term infra projects. You need to create a bond market and long-term funding institutions so that money doesn’t get locked up in banks. If these banks are unable to do it, there are 4,000 NBFCs of which 400 can be made banks. If you can improve liquidity, the economy will grow at 10 per cent annual rate, else it won’t even be at 3 per cent. The situation is absolutely bad. If you don’t sort it out in the next 30 days, growth in the entire economy is going to get stifled.

What can the upcoming Budget’s response be to this ‘crisis’ situation?

The Budget can say that we will convert 10 big NBFCs into banks every month and let credit come from there. You must create long-term lending institutions so that infra projects get credit. You have to attack the problem on a war footing.