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Banks not risk averse, they are being prudent: SBI chief

Source: PTI
September 21, 2020 20:25 IST
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For banks to give debt requires equity from promoters, Kumar said, adding that the number of people or business houses who have that capability to invest has shrunk.

Asserting that there is muted demand for loans, SBI chairman Rajnish Kumar on Monday said banks are not risk averse but they are being prudent in these trying times to avoid a repeat of the post-2008 scenario when there was "dilution" in credit underwriting standards.

Data clearly shows that investment in the economy has come down, the head of the country's biggest lender said.

 

"If the capex (capital expenditure) is not happening and investment in the economy is not happening at the same pace, then obviously this is a demand issue and the risk aversion would be where there is a demand and banks are not lending," he said at a virtual event organised by AIMA.

Non-food bank credit grew 6.7 per cent year-on-year in July as against a growth of 11.4 per cent in the same month of the last year, as per latest data by the Reserve Bank of India (RBI).

Bank credit in July stood at Rs 91.48 lakh crore.

For banks to give debt requires equity from promoters, Kumar said, adding that the number of people or business houses who have that capability to invest has shrunk.

In such circumstances, there is a need to create more businesses and entrepreneurs who have the capability to invest in operations and borrow, he noted.

"If people are benchmarking that what happened after 2008 where there was a lot of money supplied by the banks and there was dilution of the credit underwriting standards and then banking system and the country paid a heavy price.

"So, if you are benchmarking against that and want a repeat of that is not going to happen this time.

“Banks in my view, they are being prudent," he said.

To a question if further rate cuts will spur the growth, the State Bank of India (SBI) chief said whatever reduction has happened till now has not been able to push investment so far.

Interest rates have hit the lowest after RBI slashed the benchmark lending rate to a historic low of 4 per cent.

On inflation, Kumar said this time it is supply-side driven because of the supply chain disruptions.

"Right now, the demand is muted, discretionary spend is muted, so we have to do everything to keep our supply chains in order and put them up and running. Inflation will come under control," he said.

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