The Reserve Bank of India (RBI) has asked banks not to remain excessively risk-averse while lending to India Inc, as it feels this has slowed the pace of credit growth this financial year.
According to the central bank, lenders were exaggerating company-specific issues and using these as excuses to not lend to particular sectors, sources familiar with the development told Business Standard.
RBI deputy governors KC Chakrabarty and Anand Sinha would meet officials of 10 large banks to examine the issues related to non-performing assets (NPA).
“Non-food credit growth, at 15.7 per cent, was below the indicative projection of 18 per cent, reflecting the combined effect of a slowing economy and increasing risk aversion by banks,” RBI said in its third-quarter review of monetary policy for 2011-12 released on Tuesday.
The banking regulator has pared the industry credit growth forecast for the current financial year from 18 per cent to 16 per cent.
The central bank, however, would not direct banks to lend to a specific sector or a company, according to bankers and senior RBI officials. “The governor said there was no compulsion to lend to any specific government or private entity or a specific sector. Lending should happen based on due diligence of individual banks,” said Pratip Chaudhuri, chairman, State Bank of India.
The banking regulator and bankers had a discussion on issues related to lending to telecom and power sector companies.
According to senior RBI officials, chief ministers of a few states had sought RBI’s intervention, as banks were not lending to some state electricity boards whose financials had deteriorated significantly in the past few years. “RBI said it will not intervene,” said RBI governor D Subbarao.
Bankers, however, agreed there were instances in which concerns relating to bad loans were exaggerated. “While there could be issues at the micro levels, these are often being viewed as macro issues. Then, it is taken as if the entire sector is in trouble. That is a kind of move we should try and stay away from,” said Chanda Kochhar, managing director and chief executive, ICICI Bank.
Industry players and RBI officials said the current NPA levels do not pose any threat at a systemic level.
According to Chakrabarty, while NPAs in the power sector are estimated at around Rs 768 crore, banks’ exposure is around Rs 2.68 lakh crore. The total restructured loans are currently around Rs 1.12 lakh crore, primarily in the infrastructure sector, and the gross bad loan ratio is about 2.8 per cent. “This is not a concern,” Chakrabarty said.
Bankers agreed. “Just because one company has a problem, it does not mean the entire exposure to that industry is in a problem. In the past, banks’ experiences with restructured assets have been positive,” Kochhar said.
