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    ET GBS: Bankers make strong pitch for reforms in financial structure, tackle bad loans

    Synopsis

    At the end of September 2014, state-run banks had bad loans totalling 5.32 per cent of total assets, up from just over 2 per cent in March 2011.

    ET Bureau
    NEW DELHI: Bankers made a strong pitch for ‘out-of-the-box’ reforms in the financial structure if economic growth has to pick up fast.

    The focus of the strategic roundtable discussion on ‘Banking & investment reforms to boost economic growth’ at the Economic Times Global Business Summit was on how to resolve the rising bad loans, provide investment for long-term infrastructure projects and fund the unbanked segment.

    Hemant Kanoria, chairman and managing director of Srei Infrastructure Finance, said resolution of bad loans, or non-performing assets, required certain surgery.

    “In some case we need to replace the promoters and ways should be looked at that how this can be done,” he said, adding that immediate steps should be taken as there is continuous depreciation of assets on ground. “The government needs to look at that how these stuck projects can be put back on track.”

    The moderator for the panel discussion, Abizer Diwanji of Ernst & Young, said the situation is more challenging for state-run banks as they have been mostly supporting infrastructure finance where the NPA’s are higher.

    Diwanji asked the panelists whether it will be difficult for government banks to raise resources to meet capital requirements under the Basel III guidelines. At the end of September 2014, state-run banks had bad loans totalling 5.32 per cent of total assets, up from just over 2 per cent in March 2011.

    R Seetharaman, chief executive of Doha Bank, said the current situation also presents an opportunity and the assets should be differentiated on the basis whether they could be restructured or not.

    “An exclusive bank for infrastructure financing should be set up and mechanisms should be looked at to align it with the surplus sovereign funds available with Gulf nations,” he said. Kanoria said state-run banks don’t have any specialists to understand the risk of infrastructure financing and that is one area of concern. Vivek Pathak, director East Asia & Pacific at International Finance Corporation, said though there is a lot of capital available in overseas markets, state-run banks need to modernise themselves before they look to tap the markets.

    “We need to look at niche banks offering specialised products, whether for MSME or any other area,” said Vineet Bhatnagar, managing director of PhillipCapital.

    Rajesh Srivastava, chairman and managing director of Rabo Equity Advisors, said the government should allow private and foreign banks to take over management of cooperative banks.

    It should be given under clear deliverables like reduce NPA (and) increase credit growth,” he said, adding that not only it will help increase financial inclusion but also strengthen the banking system.


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