Stay away from crony lending, focus on high quality loans: CEA tells financial institutions

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March 9, 2021 1:25 PM

The financial sector will have to play an important role in infrastructure lending which needs specialised expertise, Chief Economic Adviser KV Subramanian said on Tuesday.

KV SubramanianThe initial public offering (IPO) of Life Insurance Corporation Of India (LIC), could alone rope in Rs 1 lakh crore for government coffers.

The financial sector will have to play an important role in infrastructure lending which needs specialised expertise, Chief Economic Adviser KV Subramanian said on Tuesday.

Speaking at a webinar organised by FICCI, Subramanian said that for India to become a USD 5 trillion economy, capital allocation to the infrastructure sector should be of high quality.

“Capital allocation to the infrastructure sector has to be of high quality and the financial sector has an important role in this regard. The financial sector should refrain from resorting to crony lending, which would put the brakes on lending and the economy will suffer,” he said.

Subramanian said the operational aspects of different projects are different. “Once a loan goes into distress, it blocks capital for credit-worthy borrowers. In such a scenario, the lenders will have to take complete responsibility.”

He said that the country is placing emphasis on growth through infrastructure.

“This places responsibility on the financial sector. The sector has to see that there should not be a sub-optimal allocation of capital. Even if distress takes place, the right things have to be done. Analytics can be used to identify crony lending,” he said.

The senior management of the financial institutions would have to incentivised to prevent crony lending, Subramanian said.

“Incentive mechanisms need to be put in place to prevent crony lending as infrastructure projects involve high gestation periods,” he added.

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