NEW DELHI: WITH public sector banks already crippled with huge non-performing assets, ougoing RBI Governor Raghuram Rajan suggested major changes were required for the functioning of these banks.
Speaking at a Ficci-IBA banking seminar, Rajan said that there was a need to shift the loan sanctioning process from the present committee-based approach to a single banker taking up the responsibility, as well as rewarding the person if the project goes on well.
“Even while committees may take the final loan decision, some senior banker ought to put his or her name on the proposal, taking responsibility for recommending the loan,” he said.
To achieve this, “the incentive structure for bankers should be worked out so that they evaluate, design and monitor projects carefully, and get significant rewards if these work out,” Rajan said. The Governor’s suggestion is in line with the PJ Nayak committee proposal, set up by the RBI to look into the issue of governance in Indian banks.
Rajan also laid emphasis on the use of technology that can go a long way in helping arrive at better due diligence. “IT systems within banks should be able to pull up overall performance records of loans recommended by individual bankers easily, and this should be an input into their promotion,” he said.
Rajan also voiced concern over banks, especially state-run lenders, shunning project loans, and said they should tap their large low-cost deposits from CASA (current account - saving accounts) accounts to finance infrastructure projects.
Stating that India will have enormous project financing needs in the coming days, Rajan hoped that banks would not be irrationally exuberant in lending this time.
“First the focus should move more to improving the operational efficiency of stressed assets, and creating the right capital structure so that all stakeholders could benefit,” Rajan said.
To reduce risks on lending, Rajan suggested bringing in more in-house expertise to project evaluation, including understanding demand projections for the output, likely competition, and the expertise and reliability of the promoter.
SBi to upwardly revise credit growth target
State Bank of India Chairman Arundhati Bhattacharya said on Tuesday that the bank is likely to upwardly revise its credit growth target for the current financial year beyond the budgeted 12 per cent. “We are already growing at very close to 12 per cent. This is the slow quarter. So that being the case, we may revise the credit growth projections sometime in the middle of the year,” Bhattacharya said. “...if the revision comes, it should be upward,” she said. In the June quarter, SBI’s advances rose 11.41 per cent to H14,63,690 crore from H13,13,735 crore. The bank had set a loan growth target of 12 per cent for this fiscal primarily led by retail loans which jumped 23 per cent.