Banks, local capital markets and financial centres like Gift City will have to play an important role if the planned $111 trillion of infrastructure projects have to be implemented, State Bank of India (SBI) chairman Dinesh Khara said.
Improving underwriting standards of banks together with a reduction in corporate leverage and better quality of information including data analytics hold banks in good stead as they play a supporting role in making India a $40 trillion economy, Khara said at the SBI Banking & Economics Conclave.
“The $40 trillon number looks a mamoth task but looking back, it took us 50 years to become a $1 trillion economy and we have added a trillion every fifth year. To increase the present $3.3 trillion to $40 trillion we will need financial resources and in a high interest rate scenario banks, capital markets and entities like Gift City will play an important role,” Khara said.
He said that so long as risk is underwritten and priced well there will not be any challenge to the banking system, underlining that the banking system has internalised the learning of the past with SBI itself already having provided upto 95% on its corporate balance sheet.
He said banks have been smarter in pricing risk, forcing companies to put more money on the table.
“Earlier in infrastructure projects equity was hybrid debt but lessons have now been learnt. The colour of equity is being taken into account. Also during the last cycle companies were highly leveraged while this time losing an enterprise is a reality for companies. Things like GST and other data have helped banks assess risk better to take a more scentific decision which means all in all the banking system is much better placed and better than last cycle,” Khara said.
Larsen & Toubro CFO R Shankar Raman said though the government keeps on goading companies to show their animal spirits, companies were still coming of a slow down in growth even before Covid. He said the government also has to share risk espcially with regards to infrastructure projects.
“When we have these projects, particular in partnership with the government or any of their agencies, there is some amount disproportionate amount of risk sharing. We need to make sure that in all these partnership- partnership in its true sense means holding hands right through it and now just leading the horse to the pond and watching the fun. The thought leaders in the government need to own up the risk aspect and not just talk about what can be done,” Raman said.
He said the government also has to resolve disputes quickly. “We have repeatedly come across situations where sanctity of different contracts have been questioned. If you are going to sit across with counter party who is more poweful than you are for conciliation, the conciliation can go only one way. That would be loss of value for private capital and if that is going to be happen, the banks are going to worried,” Raman said.
JSW Steel joint MD Sheshagiri Rao MVS the global slowdown is likely to also impact India specially as exports are hit. “We did $112 billion of engineering exports which included steel components. That is going to be impacted due to the global slowdown,” Rao said.
Khara cautioned that India has be efficient in utilising its resources for it to continue to grow.
He also said that the government move to increase the tenure of public sector bank chiefs to upto 10 years ensures a reasonable period but could also mean that people become CEOs without any maturity for handling the top post.
