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Loan worries for industry 

The Telegraph , Mar 14, 2018

Industry associations are worried that a fear psychosis within state-run banks, who account for 70 per cent of all banking operations in the country, could affect loans sanctioned to industry.

"We have written to the government and the RBI on this ... a fear psychosis should not impact lending," said Rashesh Shah, president of the Federation of Indian Chambers of Commerce & Industry (FICCI) and chairman of the Edelweiss Group.

While Shah does not believe lending has been impacted yet, he said: "Our fear is that it will lead to a fear psychosis and impact lending and thus the economy."

Shah also believes the high levels of bad loans in key sectors could make "project finance difficult" to access. To overcome this, he has suggested that the State bank of India, the country's largest lender, set up a separate arm dedicated to large project finance.

A circular by the RBI asking banks to tighten checks on bank loans as well as questioning of top bankers in the Nirav Modi case is believed to have impacted credit flows.

Usually bank credit disbursal in March is the highest as yearly targets have to be met by banks. However, in the current situation, officials, especially at PSU banks, are going slow on loans.

After several months of negative credit growth last year, bank credit had picked up from last November. In January, credit to industry increased 1.1 per cent compared with a contraction of 5.1 per cent in January 2017.

Among others, a requirement that bankers certify that borrowers have not been involved in any frauds is also making bankers cautious as it is virtually impossible for them to check on this without a forensic audit of a borrowing firm's balance sheet, say top bankers.

The Reserve Bank of India (RBI) has also tightened its leash on banks, with new norms for recognising bad loans, which may force lenders to recognise bad loans sooner than later. This has come after some of the country's largest banks, including the SBI, juggled soured loans citing technicalities in the past.

Shah said new big ticket private sector investments were currently "not happening" as "potential investment is going into purchase of stressed assets put up for sale by the NCLT".

The National Company Law Tribunal has taken up for resolution through auctions some 12 cases of mega-bad loans worth Rs 2.21 lakh crore, including firms such as Essar Steel, Bhushan Steel, Lanco Infratech and Electrosteel Castings among others.

Another 50 cases of large bad loans are also being taken up for resolution by the NCLT as part of a concerted step to reduce the bad loans problem dogging Indian banking. State-run banks alone currently have bad loans which account for 13.69% of total advances.

"The NCLT process has however unleashed the animal spirit in Indian industry" with aggressive bidding, Shah said. Bids are often 20 % more than what bankers had hoped for , the Edelweiss Chairman pointed out adding that he believed this would continue result in larger greenfield investments in the near future.