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Business News/ Industry / Banking/  Banks seek government guarantee for loans to some sectors
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Banks seek government guarantee for loans to some sectors

Banks have tried to limit their loan exposure only to top-rated companies
  • SBI has already passed on the recent 75 basis point (bps) rate cut by RBI
  • State Bank of India chairman Rajnish Kumar (Photo: Mint)Premium
    State Bank of India chairman Rajnish Kumar (Photo: Mint)

    Mumbai: Indian banks have sought government guarantees against their loans to certain sectors in order to revive flow of credit in the economy as a measure to counter the covid-19 slowdown, said Rajnish Kumar, chairman, State Bank of India.

    On Saturday, Kumar addressed representatives from the real estate sector via video conferencing and said even if the government guarantees the incremental lending, that will be of much help. The video conference was organised by the National Real Estate Development Council (Naredco).

    “In the current circumstances, this (government guarantee) would be the best way and this is what we have been telling the government. The risk capital comes from the government, liquidity comes from the Reserve Bank of India (RBI) and the intermediation is done by the public sector banks. So that is a workable model because the risk appetite of banks is limited," said Kumar.

    In light of the last cycle of bad loans, coupled with fear of a future pile-up in such toxic assets, banks have tried to limit their loan exposure only to top-rated companies. The lack of demand in a slowing economy has not helped either.

    Kumar said that public sector banks (PSB) have cleaned up their books, the government has infused capital and their provision coverage ratio has also gone up substantially. He added that for the government, there is the limitation on being able to guarantee lending from private sector banks or only from the public sector banks.

    “I believe there are various suggestions and the government has appointed empowered groups. All this information will be gathered, analysed and then we can expect some package and an exit plan from the lockdown," he said.

    Kumar said if the three-month moratorium is not enough, then maybe the Indian Banks’ Association (IBA) will again go back to RBI, but that will depend upon when the lockdown is lifted.

    “So, there is no certainty as of now about the exit plan for the lockdown. This will be very crucial. Maybe after the lockdown is lifted, it will take some time for migrant workers to come back, for construction to be started. So at least for six months the help should be available," he said.

    According to Kumar, RBI is fully aware of the current situation and may decide to give another one or two months, based on its assessment.

    “Based on the situation, the RBI may take a call, but we can’t expect them also to push down the risk too much. If there is a question of overleveraging or loss prior to the covid-19 period, they will not allow that to be restructured in the garb of this," he said.

    On transmission, Kumar said the bank has already passed on the recent 75 basis point (bps) rate cut by RBI. “Today, effectively the cost is 7.5-7.6% for borrowers. Ultimately there is a limit on how much we can hit the depositors. I am getting a lot of feedback from depositors that SBI does not care about depositors," said Kumar.

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    ABOUT THE AUTHOR
    Shayan Ghosh
    Shayan Ghosh is a national editor at Mint reporting on traditional banks and shadow banks. He has over 12 years of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
    Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
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    Published: 11 Apr 2020, 04:02 PM IST
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