There is no challenge to the banking system on sustaining loan growth in the country, as long as the risks are understood and priced well, said SBI Chairman, Dinesh Kumar Khara.
Lenders have learnt from the last cycle of infrastructure growth in projects like power plants, Khara said, adding that this time around, the quality of the equity capital’s source is also being evaluated.
“That was the point of time when perhaps the equity was nothing but hybrid debt. To that extent, there is a learning which has been incorporated by the system and today, it is not just the equity but the colour of the equity that’s looked into as lending is going up.”
While last time corporate balance sheets were highly leveraged and stretched, most corporates develeraged during the pandemic which has given lenders the “confidence that the path which they are treading is sustainable”, Khara said at the SBI Banking and Economics Conclave on Wednesday.
Khara highlighted that the development of social infrastructure such as insolvency courts has also helped as the fear of losing control of their firm has brought in the required corporate discipline.
In addition, the ecosystem in terms of the credit bureaus, strengthening ratings system, and GST network has given lenders credible data to evaluate the risk better. The banking sector has benefitted from this ecosystem is better equipped to leverage these to lend, he said.
Project finance
The banking sector is seeing a pick up in corporate credit, especially project finance, Khara said, adding that SBI itself has a fairly good pipeline of projects of about ₹2.5-lakh crore. In addition, the country saw fresh investments to the tune of ₹20-lakh crore, of which 70 per cent are in project finance.
In FY23, of the fresh investments of ₹12-lakh crore, 68-70 per cent are in project finance, Khara said, adding that this is reflective of the fact that people have faith in the demand in the economy.
“If there is demand, corporates are willing to invest, come with infrastructure and enable capacity creation. Capacity creation has moved to about 75 per cent, which is a very clear indication that corporates are there to avail the opportunity,” he said.
Asked where the demand for project finance was coming from, Khara said the bank was seeing robust demand across infrastructure, manufacturing and PLI (production-linked incentive) scheme-based projects.
There is no sector in particular that the lender is looking to avoid, and lending will be based on entity-based evaluation, Khara said, adding there is no asset quality stress in the corporate book and the bank will aim to maintain its net NPA ratio below 1 per cent going forward.