Amidst the challenges, a lot of hope

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: The tight monetary policy unleashed by the Reserve Bank of India (RBI) over the past several months may not have made any difference to the surging double digit inflation thus far, but it has certainly started biting the banking industry.

However, prominent bankers, policy makers, capital market players and experts seem to be clear that despite the challenges, there’s enough power in the sector to tide over the present challenges.

This view has also been echoed by Pawan Kumar Bansal, minister of state for finance, and several other panelists at the FE Round Table Conference on “Banking: The New Reality”. Experts are unanimous that though the emerging situation is tough particularly in the short term , the banking industry can fight out the challenging situation with the right kind of strategies.

Says Naina Lal Kidwai, group general manager and CEO, HSBC India, “Today, financial closure of any big project with good rates is a big issue. I see this situation prevailing till March 2009. After that we have to review the situation afresh. The issue is, how long will high inflation continue.’’ The corporates are facing a crunch in raising long-term resources as the ECB route stands shut, she observed.

She expects that in the near term, retail defaults would have to go up. It is not always that one is unable to pay, there are people who can pay but don’t pay their dues because of the environment. “Some sense has to prevail and the banks and financial institutions should ensure that information on defaults exist and there are more viable ways of making people pay,” she suggests.

Striking a note of caution, Bansal is of the opinion that the banks should not create a situation where the credit card business brews trouble for them.

“In the credit card business, one bank is prepared to take over the loan of another bank knowing very well that the person has not been able to repay the loan to the original bank. How would he be able to pay much bigger loans afterwards?’’ he questions.