India’s top-ranking bankers and financial experts discussed issues ranging from the global financial crisis to domestic banking sector consolidation at the FE’s Indias’ Best Banks Awards function in Mumbai on Saturday.
Participating in a panel discussion, Lessons from the Turmoil, moderated by Subhomoy Bhattacharjee, deputy executive editor, The Financial Express, and Latha Venkatesh, banking editor, CNBC, the experts brainstormed on the way ahead for the Indian banking industry.
OP Bhatt, chairman, State Bank of India, kicked off the discussion by saying even at the height of the financial crisis in 2008, non-performing assets (NPAs) did not rise significantly in India.
He said 50% of these NPAs will get back into the pink of health in the near term.
As to whether Indian banks were right in assessing credit risk in September 2008, Naina Lal Kidwai, group manager & country head, HSBC, said “No one knew how bad it was going to be. In hindsight, it’s easy to say: why have so much liquidity? If you weren’t conservative, you wouldn’t survive,” she said. She however said the credit rating system and rural lending are areas that need to be sharpened.
Chanda Kochhar, managing director & chief executive officer, ICICI Bank, said Indian banks have made the decoupling theory come true. “Twelve months ago, most were thrashing the decoupling theory. But today, Indian banks have made it come true. Foreign banks have retreated into a shell. But Indian banks haven’t. The problem with the US is that there are multiple regulators there, unlike in India.”
On the core question of lessons to be learnt from the turmoil, Vishwavir Ahuja, chief executive officer, Bank of America, said financial regulation was put in place with great zeal. “The way forward in my view is capitalisation and consolidation,” said Ajuja.
SS Kohli, CMD, IIFCL, said no one has seen such lack of confidence among banks. “Despite all efforts to improve liquidity, there are issues on the infrastructure lending front. There is requirement for $500 billion of capital for infrastructure alone. Of this, $350 billion will constitute the debt component. Of this again, $100 billion will be required in the next five years,” Kohli said.
S Naganath, president & CIO, DSP Blackrock Investment Managers Ltd, believed the financial crisis is far from over. “There is a 30% chance that the situation could worsen, and a 70% chance that the situation could improve. In his view, the next round of the crisis will be centered on issues concerning sovereign risk, and this will play out in the currency and bond markets. “There is still some risk embedded, though at the short end of the market,” he said.
But Manisha Girotra, MD and chairperson, UBS, endorsed the view that government ownership of banks should come down.
While Bhatt did not see any problem with 51% government ownership. He gave the examples of troubled Swiss banks into which the government pumped in money equivalent to 4% of the country’s GDP, and the Japanese banking system into which the government pumped in $500 billion.
Kochhar further discussed “We have consistently participated in the growth story of the country. During the manufacturing era, we did project finance. When consumerism took off, we focussed on retail finance. Housing registrations are slowly but steadily going up now. I think the need of the hour would be to focus on this area. There is need for a good bond market. There are many areas, where we can sharpen our skills,? she said.
In Naina Lal Kidwai’s view, some companies are not able to manage growth effectively. The question before banks is how they manage the small and medium enterprises effectively.