Mispricing of risks cause for concern: SBI chairman Dinesh Kumar Khara

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September 25, 2021 4:30 AM

“We have started seeing traction (in credit demand) from public sector enterprises and some private sectors are also coming for fresh investment,” he said.

Khara said there are “green shoots” visible in certain sectors, including commodities, iron & steel and aluminium. (File image)Khara said there are “green shoots” visible in certain sectors, including commodities, iron & steel and aluminium. (File image)

State Bank of India chairman Dinesh Kumar Khara on Friday said mispricing of risks by banks is a reality of the banking sector and it is a cause for concern.

“Mispricing of risks is still a reality of the system and that is essentially when the credit-deposit ratio comes at a certain number, it becomes an anxiety on part of the lenders on how to deal with the stakeholders. So, I think this is where the real life situation is,” Khara said at an event organised by the Bengal Chamber of Commerce and Industry.

He said though banks have tightened the underwriting standards, the surplus liquidity in the system may push them to a situation where they end up mispricing the risk. “There is temptation on bankers to go down the risk curve and misprice the risk… we are starting to see this.”

He, however, does not feel that there is any concern regarding the underwriting standards, as most banks have tightened norms following the previous experience of the decline in the asset quality and high bad loans.

Khara said there are “green shoots” visible in certain sectors, including commodities, iron & steel and aluminium. There is lot of export opportunities in these sectors and people are cashing in on that. The credit demand is expected to start picking up once investments start flowing into these sectors through either brownfield or greenfield projects, he said.

“We have started seeing traction (in credit demand) from public sector enterprises and some private sectors are also coming for fresh investment,” he said.

On the retail portfolio of the banks, Khara said there was some stress at the end of the first quarter on account of regional lockdowns. “However, things have been improving since the beginning of the second quarter.”

On some major banks slashing interest rates on new home loans, Khara said the mortgage market has started showing signs of growth and banks are trying to capture the same.

According to Khara, the Reseve Bank of India is likely to maintain a status quo on interest rates during the monetary policy review in October. As there are some green shoots visible on the growth front, the RBI might refrain from increasing rates.

“Inflation is mainly on account of supply-side disruptions and once that is addressed, inflation may not raise its head as much as it was seen in last policy decision. So, if at all inflation gets addressed by supply chain readjustment, perhaps we may have elbow room for keeping the rates at current level and wait for growth to come back in full force. At that point of time, the central bank might think of recalibrating interest rates. But at this point of time, it looks like interest rates should remain as they are,” Khara said.

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