Despite Abundant Liquidity, Banks Shouldn’t Lend Recklessly warns SBI

abundant liquidityBanks are having abundant liquidity however, there are no credit requests from the private sector amidst the pandemic crisis, a senior State Bank of India (SBI) official said on Tuesday.

“Regardless, the lenders at this point despite everything must be judicious in their loaning choices and can’t be reckless”, Sujit Verma, Deputy Managing Director (Corporate Finance), State Bank of India, said while addressing a webinar.

“Our chairman has mentioned that wherever there is a bankable proposal, we are willing to fund that, which we keep on saying as well. SBI is the largest bank, I can tell you that we are always willing and we are ready to play our part and extend that support to help the economy and various industries,” he said.

There is a general recognition that banks are progressively turning out to be risk-averse, he stated, including that one of the experts referenced that banks have moved from being risk-averse to risk-phobic.

Highlighting the absence of fresh investments by businesses he said, “Today what we see that there is no demand for credit from the private sector other than the working capital requirements,”

Then again, it is likewise obvious that banks today are flush with liquidity, he included.

The banks on a normal are stopping Rs.6-7 lakh crore to the opposite repo window (of the RBI where they procure premium), since banks don’t perceive any credit off-take, as per him.

He said the genuine opposing circumstance is that on one hand there is abundant liquidity and on the other there absence of credit request.

“My personal view is that banks, I am not just talking about SBI, I am talking about the whole banking system that we will have to do prudent lending at this juncture. There is no chance, banks will have to lend and they will have to lend prudently. I don’t think it is fair to expect from the banks to lend recklessly,” Varma said.

The SBI official said that the current circumstance is totally not quite the same as the 2011-12 worldwide money related emergency when loaning by banks had gone up altogether on the rear of the government’s financial relief package.

Discussing the financial business, he said regardless of whether the banks quit taking loaning choices, become risk-averse that being said the credit profile and NPA (non-performing resources or terrible advances) will rise.

“So I think it’s not a choice, I think banks sooner or later will have to take that call. I think that message has gone not just from the government but also the Indian Banks’ Association. And I think banks will be little more pro-active and take decisions,” Varma said.

He also highlighted the consequences of not loaning and how the banks will lose their credit profile.

Post lockdown, he additionally recommended that the corporates – big or small- should reexamine and re-asses their field-tested strategies.

“Whatever credit limit you have from today by banks will be different in the post-COVID scenario. …so our advice will be to re-evaluate your business plans, revise cash flow under the changed scenario,” Varma said.

The authority, perceiving that each crisis is an opportunity, said that the legislature should utilize this to acquaint changes with deference with land, labor, and enterprise.

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