Mumbai: There is no slowdown in lending by Indian banks, but because other sources of funding have dried up, the banks are unable to keep up despite the recent infusion of liquidity into the market, says K. Ramakrishnan, chief executive of the Indian Banks’ Association (IBA).
In an interview, his first since he took over as the CEO of the national lobby, Ramakrishnan says bankers are now more profit-oriented than ever and denies allegations that IBA kills competition and encourages cartelization. Edited excerpts:
Do you see banks’ non-performing assets (NPAs) rising and profitability being hit?
The biggest challenge for banks is that while exports are badly hit, the domestic demand is not being stirred up. I personally believe that finance is not a panacea for all the problems. The bank financing to industries is one of many means to the end. If there is inherent demand for the products and services, then only they will come to the banks for loans. Today whatever are the stimulus packages, if they are not supplemented or supported by the initiation of demand, we will not see the kind of lending that we want to see, because prudent borrowers will not come if there is no demand for their product.
Ramakrishnan says banks won’t see the lending they want if stimulus packages are not supplemented by a boost in demand. Ashesh Shah / Mint
The kind of problems that industries are facing, some amount of NPAs going up is quite normal. We will have to accept it.
For the bankers, the second biggest and a much serious challenge is that you have to prop up those companies that are having problems by restructuring their accounts. This nurturing part is more challenging because you don’t want a part of their accounts to become NPA. This is what is happening and this is going to happen in a much bigger way.
So this nurturing process is to delay the piling of NPAs?
I won’t say delaying. We have to give a very reasonable opportunity for the industry to come out of the problem. I can give them finance for one or two times, can give them support even if their inventories are piling up, because I am expecting something better. But if this problem is going to persist, I cannot finance them again and again.
Prudence is the watchword. You can always say bankers are not lending, but a banker will always lend because that is his basic dharma (inherent in nature). They are dealing with public money and if they are prudent to decide where to lend and where not to lend, it’s a very right decision.
Banks are listed companies; they have shareholders and have foreign institutions among them. The stakeholders are expecting profits and dividend from the banks. Banks need to act responsible and keep their focus on profit and profitability.
Are the banks not lending or there is no company to lend?
I will put it a bit differently. All along, companies had several sources of funding. Today other sources have dried up completely, the burden on banking industry has gone up. Banks are lending more than what is required, but the excess lending will not happen overnight.
You require long-term funds for that sort of funding. I have lot of overnight liquidity available with me. But if I borrow short-term and lend medium- to long-term, I will have a serious asset-liability mismatch.
Are the banks’ balance sheets strong enough to withstand the problem?
At least for public sector banks, they are very resilient and strong.
What about private banks?
I am not seeing any problem anywhere because of the simple reason that in the course of three-four years, all the checks and balances have been put in place by the banking industry. The resilience is there; the soundness is there; and the strength is there.
The private banks are competent. I have no reason to believe that there will be any problem.
IBA is calling bankers and fixing the loan rates at a very low level. IBA is encouraging cartelization and killing competition...
I completely disagree to what you say, for the simple reason that IBA is not independent of bankers, it’s a bankers’ body. Bankers are taking the call. I am only facilitating that. I don’t have the authority to give a direction on what they must or mustn’t do. When bankers are taking a call, they keep the overall picture in mind. I don’t think a banker will do anything that, at the end of the day, affects his basic position. IBA is not an external body or a demon or a devil. IBA is?an?institution of bankers.
IBA is a body of private, foreign and public sector banks. But increasingly it is focusing on the public sector...
I don’t agree. Let me share (this) with you: recently, there was a marathon meeting of the foreign banks’ committee of IBA. We have a committee of cooperative banks meeting shortly. IBA is a very broad-based body and we address many sectoral issues.
In the foreign bank meeting, there were discussions on what all (needs) to be done in light of the present situation. Their problems are also equally important. Many problems and many issues raised here get escalated to the government and RBI (Reserve Bank of India). Why you see us representing more public sector banks is because their representation is more in the country. Their problems are more complex.
Are you under pressure from government to make sure public sector banks join hands to give credit and cutting rates collectively?
I am under no pressure at all. I am an independent man. The government is very sensitive about the way the banks are placed.
Any progress on the wage negotiation front? The last wage pact got over one year ago.
A normal negotiation of wages, even in this condition, should happen very fast. But the added element here is that there is a demand from the unions for a second pension option for existing employees. There are also people who have retired, who have not opted for pension, the thinking is that even they must be covered under pension scheme. Because of these two issues, there is a delay.
Also, there are some financial implications. For banks, a pension is not like a Central government pension scheme. Banks have to make provisions. There is an affordability concern. There is a pension corpus, but eventually the gap will have to be made good from the profits of the banks.
How large is the gap?
As per the existing employees’ number, the gap is about Rs6,000 crore.
Now, also, we are getting the figures of the retired people.
Shouldn’t you think that banks that make more profit should be allowed to pay more salary?
The bank management should develop that kind of maturity and capability to negotiate with the respective unions. You have to keep this in mind that while the basic structure is being negotiated at the IBA level, many of the banks are negotiating about other perks and benefits. Depending upon the capabilities, some banks may be much better in giving better benefits to their employees. Differential payments exist between banks, while the basic structure remains same.
If you have wage pacts at individual bank level, what will IBA do?
I think IBA is an absolute necessity for banks because it is an industry body to discuss industry-related problems.