Basu on Tuesday said there is a need to look at all underwriting standards, primarily those related to how banks understand the risk in a particular proposal.
Banks need to support businesses by lending, but at the same time they need to have adequate risk mitigation measures in place, State Bank of India (SBI) managing director Arijit Basu said on Tuesday. In recent months, credit growth has dropped to 5-6% levels amid Covid-related uncertainty and muted loan demand.
“All lending should be prudential lending looking at companies which have a good business model, viable cash flow and then (be taken) forward. All companies will not have the best ratings because when you are going in for project finance there is an element of higher risk but then banks can lend after taking due care,” Basu said, speaking at an event organised by the Indian Merchants’ Chamber . Bankers will have to ensure that they reach out to new clients, but at the same time, they will have to ensure that they do not repeat the mistakes of the past, he added.
Last week, the RBI had rapped banks for being too risk-averse amid a crisis. “Remaining overly risk-averse may seem to be a measure of self-immunisation; but will be self-defeating as it would affect the bottom lines adversely,” RBI governor Shaktikanta Das had said. He had further observed that banks’ risk management system should be sophisticated enough to smell vulnerabilities brewing within the various businesses well in advance.
Basu on Tuesday said there is a need to look at all underwriting standards, primarily those related to how banks understand the risk in a particular proposal. “We need to understand why certain companies are in stress and as long as they are so owing to extraneous factors like Covid-19, the entire banking community has risen to the occasion and supported all of them,” Basu said. He added that even before the government schemes came, most banks had come forward to support industry and lent additional 10% funds.
“The RBI also has given a lot of dispensations and they have been quite wise and sagacious. I am quite sure that the banks will respond to it and make sure we lend to the right companies,” Basu said, adding, “We have to be prudential but have to go forward.” Across sectors, as unlocking happens, banks will have to take an initiative and not shy away from lending.
At the same time, they will have to avoid being reckless and relapsing into the same problems which impacted them just a few years ago. “This balance between the support to industry and the risk mitigation capacities is very crucial,” Basu said.