SBI Chairman Dinesh Kumar Khara said that there is no problem for the banking system to continue credit growth in the country as long as the risks are understood and well assessed.
Lenders have learned from the last cycle of infrastructure booms in projects such as power plants, Khara said, adding that this time the quality of the source of equity capital is also being assessed.
“This was perhaps when equity was nothing more than hybrid debt. To this extent, there is a learning built into the system, and today it is not only capital, but also the color of capital that is viewed as an increase in lending.
Khara said at the SBI Banking and Economics Conclave on Wednesday that while corporate balance sheets were highly leveraged last time, most corporates during the pandemic gave lenders “confidence that the path they’re on is sustainable.”
Khara emphasized that the development of social infrastructure, such as bankruptcy courts, also helped because the fear of losing control of their companies brought the required corporate discipline.
Also, strengthening the credit bureaus, scoring system and GST network in terms of the ecosystem has given lenders reliable data to better assess risk. The banking sector benefits from this ecosystem, making them better equipped to lend, he said.
The banking sector is seeing growth in corporate lending, especially project finance, Khara said, adding that SBI itself has a fairly good pipeline of projects worth around ₹ 2.5 lakh crore. In addition, the country has seen new investments of ₹20-lakh crore, of which 70 percent is in project financing.
68-70 per cent of the ₹ 12-lakh crore new investments in FY23 are in project finance, Khara added, reflecting people’s confidence in the demand in the economy.
“If there is demand, corporations are ready to invest, come with infrastructure and enable capacity building. Skill creation has increased to around 75 percent, which is a very clear indication that corporates are there to seize the opportunity.”
When asked where the demand for project financing is coming from, Khara said the bank has seen strong demand in projects based on infrastructure, manufacturing and PLI (production-linked incentive) scheme.
There is no sector in particular that the lender wants to avoid and lending will be based on enterprise-wide valuation, Khara said, adding that there is no asset quality stress in the corporate book and the bank will aim to maintain a net NPA ratio. below 1 percent ahead.