Tag: banking

Bank of Maharashtra mulls FPO to cash in on retail investor demand, BFSI News, ET BFSI

Banking & Finance

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“Investors have shown a lot of enthusiasm in the bank’s scrip considering the promising performance of the bank since the last two years which resulted in a sharp rise in the bank’s share price. The Bank may come up with FPO in view of demand from retail investors in future at an opportune time,”bank’s MD & CEO A S Rajeev

Bank of Maharashtra, which has been adjudged best performer among PSBs for the last fiscal, is looking to come up with a follow-on public offer at an opportune time.

“Investors have shown a lot of enthusiasm in the bank’s scrip considering the promising performance of the bank since the last two years which resulted in a sharp rise in the bank’s share price. The Bank may come up with FPO in view of demand from retail investors in future at an opportune time,” bank’s MD & CEO A S Rajeev told ETBFSI.

The bank recently raised Rs 400 crore via qualified institutional placement as it took benefit of consistent performance in the last ten quarters and the current market scenario.

To support the projected growth and improve the CRAR level, the bank may further raise capital in the form of Tier I /Tier II bonds at an opportune time.

At present, the bank is well capitalised with CRAR as of Q1 FY22 at 14.46% as against the minimum requirement of 10.875%. The CET-1 capital ratio of the Bank stood at 11% as against the minimum requirement of 7.375%.

“Looking forward and considering present market condition, we are targeting growth in gross advances by 16-18% for the current fiscal, the bank’s Board has created an enabling provision to raise Rs 5,000 crore capital for business growth. We are projecting advances level of Rs 125,000 crore in this financial year,” Rajeev said.

Expansion plans

Bank of Maharashtra is on an expansion mode and wants to have branch presence in all the districts of the country. In the last fiscal, the bank opened 132 outlets, of which new branches are 86. The bank has been able to mobilise Rs 1,000 crore in just nine months of their operation.

“During current fiscal, we are all set for opening branches at 200 banking outlets with a hub and spoke model i.e. branches to act as hubs and surrounding centres through customer service points (CSPs) managed by Business Correspondents as spoke. We are targeting the Business centres, where ample opportunities are available for business growth, Rajeev said.

The bank plans utilisation of technology and data analytics to tap into previously untapped markets through product innovation & using artificial intelligence.

Bank of Maharashtra mulls FPO to cash in on retail investor demand
Reducing NPAs

Rajeev said the bank is taking conscious efforts to monitor recoveries including asset sales, one-time settlements etc. To push loan recoveries in stressed assets, the lender has come up with effective settlement schemes with attractive terms. “Keeping present scenario into consideration, we are also giving priority in small NPA accounts up to Rs 1 crore dues by extending compromise offer under non-discretionary and non-discriminatory policy. Recovery machinery at all levels are geared up through phone calls, emails, virtual interaction with the borrowers and through the Specialized SAMB and ARB branches,” he said. The bank organises recovery camps at regular intervals which helps in arriving amicable resolution. Mega e-auction through e-Bikray platform with appropriate publicity has been carried out including tie-up arrangements with real estate agencies at notified places to fetch favourable outcome, Rajeev said.



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IDFC First Bank aims retail loan book growth of 25 per cent on long-term basis, BFSI News, ET BFSI

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Private sector IDFC First Bank is aiming its retail loan book to grow by 25 per cent on a long-term basis and expects the mortgage lending to account for 40 per cent of its loan book going forward. Bank’s profits before provisioning are low currently because of the DFI (development financial institution) background with higher cost of legacy liabilities, and due to the set-up cost of a new bank, V Vaidyanathan, Managing Director and CEO, IDFC First Bank, said in bank’s Annual Report 2020-21.

“This is getting fixed at a quick pace because of our strong profitability on an incremental basis…the underlying quality of the bank we are building is not entirely visible at this stage to you,” he said in his message to the bank shareholders.

Contending that it was not right to compare IDFC First Bank with the already established 20-30 years old banks or with entities who were profitable when they converted to banks, he said “the power of incremental profitability is lost in the noise”.

IDFC First Bank reported a net profit of Rs 452 crore in 2020-21. There was a net loss of Rs 2,864 crore in FY20.

The erstwhile IDFC Bank had merged non-banking finance company Capital First with itself in December 2018, post which Vaidyanathan took over as the managing director and CEO of IDFC First Bank.

He said IDFC First Bank has strong incremental profitability of retail lending as well as corporate lending business.

In retail, the incremental borrowing cost is less than 5 per cent, the lending rate is over 14 per cent, thus the incremental spreads on retail is over 9 per cent.

“We have specialisation in these segments and our credit costs (provisioning) are expected to be about 2 per cent based on the combination of products we finance. Thus our incremental ROE (return on equity) in the retail lending business is estimated at 18-20 per cent,” Vaidyanathan added.

There is strong incremental profitability of corporate lending business with estimated incremental business ROE at 14-15 per cent. However, he said that this is not visible on the bank’s books because of the higher cost of Rs 1,000 crore from legacy liabilities and set up costs in retail business as it is a new bank.

It is carrying Rs 27,936 crore of fixed rated liabilities at 8.66 per cent, as it converted from a DFI to a bank.

“When our bank will replace this let’s say 5 per cent, we would save about Rs 1,000 crore per year on an annuity basis compared to today. This is a legacy issue on the liability side and will go away with time,” he noted.

On set up cost since merger, IDFC First Bank has invested in 390 branches, 565 ATMs, added over 12,000 employees, boosted technology and scaled up many new businesses like credit cards, wealth management, gold loans, prime home loans among others.

These investments are giving us a negative drag today but this will become profitable with scale, Vaidyanathan said.

“The negative drag because of high cost liabilities will go away as the bank will repay these liabilities on maturity. And the negative drag because of investments will go away with scale,” IDFC First Bank said.

Thus the highly profitable retail and wholesale businesses will shine the results. “Our lending business is immensely profitable. We expect to grow the retail book by nearly 25 per cent on a compounded basis for a long period of time.”

“This is already playing out over the last two-and-a-half years, as the NIM (net interest margin) has already expanded from 1.84 per cent pre-merger to 5.09 per cent in Q4 FY 21 and further to 5.51 per cent in Q1FY22. We expect profitability to increase as we expand the loan book,” Vaidyanathan added.

The lender is also expanding customer segments to cover prime home loans and has lowered interest rates.

“We can sustainably pursue prime home loans, the safest category of loans. We expect mortgage backed loans to form 40 per cent of our loan book in due course,” said the official.

He said the bank is also targeting a 2-1-2 formula to keep its gross non-performing assets (NPAs or bad loans) at 2 per cent, net NPAs at 1 per cent and provisions at 2 per cent on a steady basis. In FY21, its gross NPAs were over 4.15 per cent and net NPAs stood at 1.86 per cent.

Speaking about bank’s exposure to cash-strapped telecom player Vodafone Idea, the MD told the shareholders that he expects the government to support the industry, as out of the total dues of the telecom player, as high as Rs 1.5 lakh crore are owed to the government only.

“…hence they will be keen to solve this issue. In any case, we have a lot of growth capital by our side. We will peruse the matter through law of the land.”

He said a “one-off incident does not dent the long-term story”.

Bank’s exposure to Vodafone Idea stood at Rs 3,244 crore as of June 30, 2021. Among others, the bank said it plans to raise up to Rs 5,000 crore debt capital and will seek shareholders’ approval in the annual general meeting (AGM) next month.

After assessing its fund requirements, the board of directors of the bank in July 2021 have proposed to obtain consent of the members of the bank for borrowing funds from time to time, in Indian or foreign currency by issue of debt securities on private placement basis, up to an amount not exceeding Rs 5,000 crore, it said.

Bank’s 7th AGM is on September 15, 2021.

The bank will also seek their consent to re-appoint Vaidyanathan as the MD&CEO for a period of three years from December 19, 2021.

He was appointed to head the bank for a period of three years from December 19, 2018.

His term would conclude on December 18, 2021 and the board of the bank had approved his appointment for another three years in June 2021, subject to approval of shareholders and RBI.

“Accordingly, the bank has filed an application with the RBI for re-appointment of V Vaidyanathan as the MD & CEO of the Bank. The approval of RBI is awaited.”

The approval of the members is now sought for his reappointment for a period of three consecutive years commencing from December 19, 2021 up to December 18, 2024 (both days inclusive), it added.



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Afghans protest against closure of banks in Kabul, BFSI News, ET BFSI

Banking & Finance

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Hundreds of Afghans in Kabul protested against the closure of banks on Saturday as people have been facing serious financial difficulties due to the shutdown, a media report said.

Men and women took to the streets of Kabul on Saturday to protest against the closure of the central bank, private banks, and money-changing markets across the country, Khaama Press reported on Saturday.

People gathered at the gate of government and private banks in Kabul but they did not get their money, Khaama Press added.

The Taliban had directed all government and private banks to resume operations from Saturday.

However, bank officials have not resumed operation as they said the central bank of Afghanistan, Da Afghanistan Bank, is still closed, Khaama Press added.

Since the Taliban’s takeover of the country, banks have been closed leaving millions of people out of cash.

Employers have not paid their staff and even those who have money in their accounts cannot withdraw it.

Afghanistan’s situation is deteriorating as the Taliban took control of the country on August 15 after the fall of the government.



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Can the bank take your assets if you have defaulted on a personal loan?, BFSI News, ET BFSI

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What happens to the borrower if he/she defaults on a personal loan? In case of a secured loan like a home or car loan, the lender can take over the asset that is used as collateral to secure the loan. However, in the case of an unsecured loan like a personal loan, what is the legal recourse that a lender will take to recover dues from the borrower?

An unsecured loan does not offer any security to the lender and hence, there is no immediate threat to the borrower about lenders having any claim on their assets. “An unsecured loan is without any security or mortgage as guarantee for repayment and solely based on borrowers credit rating. Hence, assets cannot be appropriated. Recovery is based on the contract term of dispute resolution and through the process of law,” says Harsh Pathak, a Delhi based advocate.

What this means is that the lender on their own does not have the right to possess any of your assets. “Assets of a borrower can only be attached following the due process and through a court order on whatever assets the court deems fit. Borrower’s assets are beyond the recovery net of the lender, and only come for realisation of debt pursuant to the assessment and order of the competent court,” adds Pathak.

Here is a look at how the lender will recover dues from a borrower who has defaulted on a personal loan and the options available with such a defaulting borrower.

Damage control at first instance
Lenders typically get serious with regards to recovery when there is a prolonged delay in repayment of the loan. “The borrower’s account is classified as a non-performing asset (NPA) if the repayment is overdue by 90 days,” says Sonam Chandwani, Managing Partner at KS Legal & Associates. The lender will start legal proceedings once your loan account turns into an NPA, which means only after you have not paid three consecutive EMIs. The lender will give you a notice of 60 days to clear the dues before starting the legal proceedings. This is the time you should try your best to settle the default.

“At the outset, if borrowers can convince the lender that defaults are temporary and repayment would soon become regular, the lender may delay the legal proceedings. Therefore, clear and honest communication with the lender can stall or at the very least delay proceedings initiated by the lender, if any,” says Chandwani.

Lender may set off debt with bankers’ lien
There are many unsecured loans where the asset is not mortgaged but only a lien is marked on the assets like safe custody, bond, fixed deposit, shares, mutual funds etc. Once a lien is marked, the borrower cannot sell the assets before clearing the dues and lender removing the lien.

So, what happens if the borrower has defaulted and is unable to pay the dues?

“The lender may have a right to exercise banker’s lien and right to set off if it has been contractually agreed by the borrower. Banker’s lien is the right of retaining assets delivered to the bank’s possession unless the borrower to whom they belonged has agreed that this right shall be excluded, such as in the case of valuables kept in the bank for safe custody,” says Manisha Shroff, Partner, Khaitan & Co.

A bank may exercise the option to set off the dues against your deposits. “A lender also has a right to set off a debt owed by a borrower against a debt due from him. For example, a bank can set off the amounts owed by the borrower against the money deposited by the borrower in the accounts of the bank, if contractually agreed,” says Shroff.

If you have fixed deposits or savings account with a bank, then in such a situation the bank may recover dues from these deposits.

Lender goes for a lawsuit for recovery of money
In usual circumstances the lender does not have any right on the borrower’s property but if the lender files a suit in the court and gets a favourable order, things can change. “A brief action or summary procedure is available for recovery of money under the Civil Procedure Code, 1908, by way of the institution of a suit in a court of appropriate jurisdiction,” says Shroff.

The jurisdiction of the suit is determined first based on territorial jurisdiction and then on pecuniary jurisdiction. The pecuniary value (total dues claimed by lender) of the suit becomes a deciding factor on whether the lender will file the suit either in the district court or in the high court.

“When the lender obtains a decree from a court of law against the borrower, he is to get the decree satisfied by way of execution proceedings. The execution comes to an end when the judgment-creditor or decree-holder gets cash or other thing granted to him by judgment, decree, or order,” says Shroff. At this stage as well, the borrower can get a final chance to settle the loan without involving attachment of any asset.

However, if the borrower is unable to settle the dues, he/she faces the threat of his/her assets being attached. “In the event the borrower is unable to comply with the decree of court, the court may, upon application by the lender, attach the assets of the borrower,” says Shroff.

Lender can approach Debt Recovery Tribunal for loan above Rs 20 lakh
A lender can initiate recovery dues by approaching the Debt Recovery Tribunal (DRT) under the Recovery of Debt Due to Banks and Financial Institutions Act, 1993 (DRT Act). This option is available only for high value of outstanding as the amount of debt should not be less than Rs 20 lakh, according to the DRT Act.

“The DRT Act is not applicable where the amount of debt due is less than Rs 20 lakh or any other amount not below Rs 1 lakh, in cases where the central government may by notification specify. Thus, in essence, minimum debt which is to be recovered from DRT should not be less than Rs 20 lakh,” says Shroff.

The borrower also gets the opportunity to be heard and present his facts before the tribunal which can be considered by the tribunal before passing a final order. “Upon completion of the proceedings under DRT, if the DRT finds fit, it may pass orders for appointing a receiver of the property/assets of the borrower, before or after the grant of Recovery Certificate (RC) or appoint a commissioner for collecting details of defendant/respondent’s property or sale thereof,” adds Shroff.

After going through the case history and presented facts if the tribunal passes the order for attachment of the property, then the recovery office of DRT may proceed toward attachment and sale of the borrower’s assets.

Rights of a defaulting borrower
A borrower defaulting on an unsecured loan may exercise the following rights: Right to sufficient notice, Right to be heard, Right to humane treatment and Right to report grievance.

“Apart from other contractual rights that an individual borrower may have under the loan agreement, the Reserve Bank of India (“RBI”) has formulated Fair Practices Code (“FPC”) to streamline loan recovery practices for banks and financial institutions,” says Shroff.

Banks cannot indulge in misconduct or bypass the procedure laid down by the law against the defaulters. “In case of misconduct by banks, NBFCs, ARCs, the defaulter shall have legal rights against the same. In the event of harassment or coercion by the bank or recovery agents, the borrower may approach the banking ombudsman under the relevant framework of the RBI. In cases of continued harassment, a police complaint can also be filed or an injunction can be filed before the civil court,” says Chandwani.

If the lender has taken the legal proceedings to a court or DRT you need to follow the proceedings and represent your case. “In case of an unsecured loan, lenders typically try to obtain an injunction on sale or disposition of any and all assets. However, banks cannot sell all the assets; they can only sell such assets as would be sufficient to realise the amount of defaulted loan along with interest, costs and expenses etc.,” says Mani Gupta, Partner at Sarthak Advocates & Solicitors.

If the matter has gone against you in court or the DRT, you need to make sure its impact is limited. “If the borrower has an asset whose sale would realise sufficient proceeds to meet the liability, the borrower should inform the DRT/ court of the same and seek that injunction be limited to such asset. Apart from this, certain types of property cannot be sold in execution of decree,” adds Gupta.

Be pro-active to settle the dues
A serious default, where the lender needs to write off a significant outstanding amount of your loan, can impact your credit history severely. With a poor credit history it is almost unlikely that the borrower will get any credit in future. Even if you settle the dues later on it will always reflect in your credit history and will take many years to improve your credit score.

Though, it may be difficult and time-consuming process for the lender to get a claim on the borrower’s asset to recover the unsecured loan’s due, however, if it happens the cost for the borrower will be much more than the due amount as the lender will not only recover the principal but also the interest, penalties and cost of the legal suit.

“Borrower should be proactive in settling the loan, otherwise it cost penal interest, adverse credit rating, late fees and legal cases. As civil cases are common and permissible on default cases. However, in exceptional circumstances criminal cases for breach of trust or cheating can also be initiated,” says Pathak. So, the better way is to be proactive and take some hard calls about liquidating your own assets and settling the dues at right time at a lesser cost.



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SBI ordered to repay customer, BFSI News, ET BFSI

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Udupi: The Udupi District Consumer Disputes Redressal Commission (UDCDRC), recently ordered the State Bank of India (SBI) to pay Rs 6 lakh to Harish Gudigar, a wood sculptor from Uppuru. While he was working as a graphic designer in Bengaluru, he had a savings account at the Malleshwaram branch of the SBI. He used to keep fixed deposits in the same branch. His case relates to online transfer of money from an offline fixed deposit, to an unrelated savings bank account.

Giving details of the order, Ravindranath Shanbhag, president, Human Rights Protection Foundation, said that Harish resigned his Bengaluru job in February 2019, and returned to his hometown. He transferred his saving bank and fixed deposits accounts to the Santhekatte branch of SBI.

On August 23, 2019, Harish received a transaction message on his mobile phone, that he did not understand. When he checked the transactions, he was shocked to find three bank transactions within a few minutes. The first transaction was related to transfer of Rs 5 lakh from Harish’s fixed deposit accounts to his savings bank account. In the second transaction, Rs 50,010 was transferred from another fixed deposit account of Harish, to his savings bank account. The third transaction effected a transfer of all the money to the tune of Rs 5,50,010, to a savings bank account of an unknown person in the Delhi branch of SBI. He immediately transferred Rs 6,360 left in his account to a private bank account.

Immediately, Harish rushed to the SBI branch of Santhekatte and explained the incident to the manager. He was assured the money was safe, and a complaint was filed with cyber police.

He was promised that his money would be remitted within 48 hours. His repeated queries and a complaint to a senior official did not produce any results. After five months of the incident, Harish approached UDCDRC with the help of HRPF, Udupi. After 16 months of deliberations, the commission has pronounced the judgment, and has ordered SBI to pay the disputed amount Rs.5,50,010/- along with 10% interest to Harish Gudigar. It has also sanctioned Rs.50,000 as compensation and Rs.10,000 towards the cost of litigation.



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Balance transfers lead home loan growth of 26% in H1 as rates hit rock bottom, BFSI News, ET BFSI

Banking & Finance

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As the economic situation recovers from the pandemic lows last year and interest rates are at all-time low levels, demand for home loans in India rose 26 per cent during the first half of 2021, compared to the preceding six months.

However, there is a catch. About 42% rise in borrowers opting for balance transfers in the first half of the calendar 2021 as compared to the preceding six months of

July-December.

According to a Home Loans Consumer Study, the balance transfer requests have increased because of a dip in interest rates.

“The soaring demand has been triggered largely by the fact that the Reserve Bank of India (RBI) has kept the repo rate unchanged at a constant 4%, allowing many banks to offer interest rates of less than 7% for home loans. This has also been a key driver in augmenting the demand for home

buying,” the report said.

Low rates

Borrowers opt for a balance transfer when they feel that they can bring down their interest rates by switching to a new contract. An increase in the number of balance transfer requests also reflects a growing level of awareness. “Almost 50% of the borrowers opt for tenures less than 15 years. With factors like low interest rates, stable prices and attractive payment plans, we are hopeful that the pent-up demand would soon translate into sales,” said Magicbricks CEO Sudhir Pai.

In terms of the demand for balance transfers, New Delhi, Bengaluru, Mumbai, Pune and Hyderabad were the top five tier-1 cities. Among tier-2 cities, Ghaziabad, Noida, and Visakhapatnam were the top five.

Other loans grow too

In addition to growth in loans for new home purchases and balance transfers, loans against property has also seen a growth of 20% because of the low rates.

For loans against property, Bengaluru, Hyderabad, Chennai, New Delhi and Pune saw the most demand across tier-1 cities, and Gurgaon, Jamshedpur, Patna, Faridabad and

Lucknow for tier-2 cities. Another finding from the report is Bank of Baroda, Indian Bank, SBI, HDFC and ICICI Bank are the most searched lenders on Magicbricks’ platform.



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RBI imposes penalty on 2 co-op banks, 1 NBFC, BFSI News, ET BFSI

Banking & Finance

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Mumbai, Aug 26 (PTI) The Reserve Bank of India (RBI) on Thursday said it has imposed penalties on two co-operative banks and a non-banking financial company (NBFC), for deficiencies in certain regulatory compliance. A penalty of Rs 3 lakh has been imposed on Jijamata Mahila Sahakari Bank, Pune, Maharashtra for non-compliance with the directions on exposure norms and statutory/ other restrictions-urban co-operative banks (UCBs), the central bank said.

In another statement, it said a penalty of Rs 2 lakh has been imposed on The Muslim Co-operative Bank Limited, Pune, for contravention of/non-compliance with the directions issued by the RBI on Know Your Customer (KYC).

The RBI also said it has imposed a penalty of Rs 5 lakh on Seyad Shariat Finance Limited, Tirunelveli (Tamil Nadu), an NBFC, for non-compliance with certain provisions of the Know Your Customer Directions, 2016.

In all the three cases, the RBI said penalities are based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by them with their customers.



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LnD Pool launches certificate programme in banking and insurance

Banking & Finance

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LnD Pool, a Kochi-based startup, has launched a unique certificate programme — The Certificate in Bancassurance Channel Management — to address the skill gap in the Banking, Financial Services and Insurance (BFSI) sector.

The certificate programme is offered in association with BFSI Sector Skill Council of India. BFSI Sector Skill Council of India (BFSI SSC) is the assessing and certifying body under the National Skill Development Corporation (NSDC) and Ministry of Skill Development & Entrepreneurship (MSDE).

The program is open to young working professional, fresh graduate/ PG or final year student who are interested in banking and insurance careers. The pedagogy is relevant to professionals working in both BFSI as well as other sectors viz. FMCG/FMCD/ automobile /pharma/ paint etc. who are looking for career opportunities in BFSI sectors in India and abroad. The job roles open in banks, insurance, broking and other financial services companies include Relationship Managers, Front line Sales Managers, Area Managers, Territory managers etc.

Besides upskilling existing professionals working in the BFSI sector, the course prepares fresh pass outs as well as students to be industry ready and also offer placement assistance.

Started out earlier this year in Jan 2021 as an online platform, LnD Pool is engaged in connecting trainers/ speakers/resource persons with BFSI organizations and educational institutions. Currently, more than 130+ subject matter experts/resource persons have signed up on its platform as Members.

The admission for the Certificate in Bancassurance Channel Management is open with an easy, online enrolment process. For further details visit the link https://Lndpool.com/bancassurance-channel-management/

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Chief Economic Advisor K V Subramanian, BFSI News, ET BFSI

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Exhorting the Indian BFSI sector to make a mark globally, Chief Economic Advisor K V Subramanian has said India should have at least six banks in the global top 100.

“It is a matter of mindset now, the mindset has to be one where we are not happy with just being lions at home and lambs abroad, we have to be lions globally as well, Krishnamurthy Subramanian said, delivering the keynote address at ETBFSI Summit.

Stating that India has to become a big player in the BFSI space in the next decade, he said the sector must seek inspiration from IT, pharma & sports.

BFSI sector needs to have that hunger which will also help the Indian economy, Subramanian said, adding, “Five Chinese banks are in the top 100 global, Swedish banks, American banks. There is no reason why our banks cannot be in the top 20 either.”

Ruing that India has only one bank in the global top 100 — SBI at 55th position, he said for the size of the economy, India should have at least six banks in the global top 100, some in the top 10 or the top 20.

Drawing an analogy with cricket, he said the Indian BFSI sector appears like the Indian cricket team of the 1990s which could boast a lot of victories at home but had nothing noteworthy outside the shores, globally.

The sector has to aspire to become like a cricket team under Sourav Ganguly, Mahindra Singh Dhoni or Virat Kohli where they’re achieving global recognition.

“The BFSI sector has to start mattering globally, their aspirations need to be scaled up. Aspiration has to be set, given the aspiration that India has set for the economy itself.”

Fixing problems

The CEA said India’s BFSI sector has a quality and quantity problem which needs to be fixed, especially when the Prime Minister has outlined Rs 100 lakh crore infrastructure building apart from the National Infrastructure Pipeline.

“Infrastructure will actually require the BFSI sector to be able to participate and thereby learn how to do high-quality lending without suffering the problem of non-performing assets, crony lending, evergreening of loans, gold plating of loans, all the kind of problems that we have witnessed in the Indian financial sector over the last decade,” he said.

He said the country has large corporates and large borrowers who end up borrowing but not repaying, and yet many times banks actually end up giving credit to the defaulters as well.

Observing that on the credit side India is far behind, he said, “The ratio of credit to private credit to GDP at about 58% is one-third of the global average of, close to 170 per cent.”

He said the BFSI sector should avoid the phenomenon of accelerating credit, and braking when bad loans mount, if credit expansion has to happen in a sustained manner to push economic growth.

“It is very important for credit expansion to happen at a consistent pace without the usual accelerator brake phenomenon that has been the characteristic of the Indian financial sector ever since liberalisation where, when the economy starts doing well, credit expands significantly oftentimes in the process. The credit underwriting norms are relaxed, and as a result, the seeds for a crisis are sown during good times,” he said.

Leveraging tech, data analytics

Underscoring the importance of technology and data analytics, Subramanian said banks and financial institutions which were very efficiently leveraging data and analytics had much lower bad loans, and their balance sheet expansion did not come under pressure. “Those banks were also able to grow consistently, and thereby contribute to the economy. That is the objective that the Indian BFSI sector must have,” he said.

The CEA said a lot of the private sector banks have used data and analytics for retail lending, but the usage of the same is very low for large ticket lending and SME lending. “The Indian BFSI sector should hire far more engineer MBAs to bring this technology driven in banking,” he said.

“In BFSI sector leaders need to be those that are technologically very well drained not only to be able to come up with models for retail lending, but also models for large-ticket corporate lending,” Subramanian said.



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