Long-term projects should be funded through debt market: Sanjiv Bajaj

Banks are ill suited to fund long term projects as there is a mismatch between assets and liabilities, he said

Banks are ill suited to lend for long-term projects and their funding should ideally come from the debt market through insurance and pension money, said Sanjiv Bajaj, MD, Bajaj Finserv on Monday.

Speaking at a CII event in Mumbai, Bajaj said, “There is no reason why banks should be lending for long term projects. They are actually ill suited as there is a mismatch between assets and liabilities. This has to come from the debt market through insurance and pension money.”

Bajaj also highlighted that insurance and pension businesses in the country are very small, restricted by limitations on how to invest for the long term. He added that while India has a large stock market, its larger capital markets are under-grown.

 

“Our bond markets have a long way to go. We need to do this by facilitating new products, bringing in additional industry participants into it,” he said.

Bajaj emphasised that India needs much greater spread of financial services, whether its banking products, insurance products, mutual funds, pension products, etc.

“We need to ensure these permeate all across the country,” he said, adding that there needs to be a greater harmony between various regulators to ensure that the policies are robust and allow for innovation, and are aligned.

According to Bajaj, the financial sector plays a very important role in the economy, whether it is banks, insurance companies, asset management companies, over the years have helped India’s economy grow from about $300 billion to $3.5 trillion that it is today. Also, in the last decade or two, a number of Indian firms have not only built scale but have also gone global.

“We have to ensure that there are many more financial services institutions that can match them in scale, capability, and ambition,” he said.

He also highlighted that India’s credit to GDP is in the mid-30s, while that for the US and UK are between 70-80 per cent.

“Our biggest growth engine is the MSME sector, it accounts for 30 per cent of GDP and yet the access of formal financial credit is available to less than 15 per cent of MSMEs, and that means there is a gap of Rs 22 – 25 trillion credit to the sector,” Bajaj said.

He also cautioned that while it is important to give greater access to credit, it has to be also ensured that the credit availability comes with the right quality.