Banking sector needs $70-billion capital to support $5-trillion economy: SBI chairman Dinesh Kumar Khara

He said in India, the bank credit to gross domestic product (GDP) ratio is around 56% currently, while the corporate debt to GDP ratio stands at 90%.

On co-lending, Khara said SBI has signed a few agreements with some partners and is looking to actively engage in more such partnerships as they “serve the purpose on the ground and it also makes efficiency in terms of quality of portfolio for the banks.”
On co-lending, Khara said SBI has signed a few agreements with some partners and is looking to actively engage in more such partnerships as they “serve the purpose on the ground and it also makes efficiency in terms of quality of portfolio for the banks.”

The banking sector is very well capitalised at present, but for the economy to reach the $5-trillion target, lenders would need fresh capital of $70 billion, State Bank of India (SBI) chairman Dinesh Kumar Khara said at the virtual FICCI-IBA banking conference held on Wednesday.

“Banks should continue to stay as attractive as they have been in the past with the investing community, and they should also be in a position to raise AT1 (additional tier-1 bonds) at a fairly reasonable cost, debt instruments at a fairly reasonable cost, which will help in supporting this kind of activity (economic activity),” he said.

As far as funding to corporates is concerned, Khara said while the bank is committed to lending to these large scale entities, the landscape is undergoing significant change with corporates being able to raise money from the capital markets. He said over the last few years, almost Rs 2 lakh crore worth of corporate deleveraging took place.

He said in India, the bank credit to gross domestic product (GDP) ratio is around 56% currently, while the corporate debt to GDP ratio stands at 90%. In advanced countries like the US, the private debt to GDP ratio stands at over 200%, showing that there may be a significant change ahead in ways companies borrow money. Khara said the infrastructure investment trust route is a good mode for infrastructure financing.

On co-lending, Khara said SBI has signed a few agreements with some partners and is looking to actively engage in more such partnerships as they “serve the purpose on the ground and it also makes efficiency in terms of quality of portfolio for the banks.”

“Co-lending as a mechanism is essentially meant for establishing connect with the last mile. It is often talked about that with SBI having about 65% of its branches located in rural, semi-urban spaces, does it still need co-lending partners. I think we still do need co-lending partners. The reason is the last mile connect which is there with these partners who are operating in a particular geography which is more like a niche area, where they have got adequate information about customers and borrowers, which actually is a very integral component of taking any decision,” Khara said.

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