Dialling Banks: Government Departments Set To Pitch Their Sectors To Lenders

The government has invited top bankers for a meeting on Nov. 17 and 18, where various departments will make presentations. According to three bankers in the know who spoke on the condition of anonymity, ministries including road and transport, heavy industries, aviation, railway, ports, power, telecom, metals, pharmaceuticals, among others, will make presentations to bankers.

The idea, the three bankers said, appears to be to encourage banks to start lending more to these sectors. The conversations may cover the health of these sectors, new projects and the direction of policy, they said.

The government is keen to push infrastructure growth, the first of the three bankers said. The meeting is part of its strategy to act as an investment banker to key projects where the government is a stakeholder.

Queries emailed to the Finance Ministry on Monday remained unanswered.

The is the first time in many years that various ministries are set to make presentations to banks, the three bankers cited earlier said. Typically, the Ministry of Finance acts as the nodal agency for coordination between the government and banks.

By engaging with banks, the government is aiming to get a sense of the issues plaguing corporate loan growth, particularly to the infrastructure sector, the bankers cited said.

The road sector has attracted a fair amount of bank lending interest as the ministry has pushed projects under the hybrid annuity model, where risk is perceived to be lower. According to the second banker cited earlier, this gives banks a lot of comfort in lending toward the projects as there's a fixed time frame within which government payments are made.

Other sectors, though, haven't caught bankers' interest.

In the power sector, the financial position of distribution companies is worrisome. Since the problem is more structural, the government will have to come up with a strategy that clearly addresses power tariffs and financial discipline among distribution companies, the second banker said.

Similarly, in case of telecom, while the government has given a breather to the telecom companies by easing the adjusted gross revenue payment schedule, concerns remain, the first banker cited earlier said.

Beyond specific sectors, bankers will seek clarity on policy and implementation risks. Previously, banks that extended loans to coal mining firms and infrastructure companies faced losses owing to adverse judicial decisions.

No banker wants to sit on excess liquidity, everyone wants to make margins by lending to companies, the third banker said. However, unless the government gives more clarity on key sectors, it's unlikely that credit growth to core sectors will pick up immediately.

Bank lending to large industries fell 1% year-on-year to Rs 22.6 lakh crore as of Sept. 30, according to monthly sectoral data from the Reserve Bank of India. While loans to the road sector rose nearly 25% from the preceding year to Rs 2.43 lakh crore, those to the telecom sector have fallen 3.6% year-on-year. Power sector loans rose 4% from a year ago to Rs 5.7 lakh crore, according to RBI data.

The government's efforts may or may not help.

Corporate credit growth will come organically when companies decide the best time to push investments, said Dhananjay Sinha, head of strategy research and chief economist, JM Financial. "Right now, the issue is not lack of bank lending, but that companies are deleveraging their balance sheets," said Sinha, adding that banks have adequate capital and liquidity and are searching for opportunities to lend.

Banks have also been highlighting the lack of risk appetite among borrowers, leading to slower corporate credit growth. "If promoters risk losing their business upon a loan default, then the risk appetite for putting up large projects by leveraging balance sheets will remain low and rather they could continue to opt for smaller brownfield expansions," said Anil Gupta, vice president-financial sector ratings at ICRA.

Another issue which banks intend to bring up is the fear of prosecution, the third banker said. Since the recent arrest of former State Bank of India Chairman Pratip Chaudhuri is still fresh, banks will bring up the kind of post sanctioning pressures that they have faced. While the government has amended the Prevention of Corruption Act, the fear of questioning by investigative agencies and the vigilance department still hampers the pace of decision-making at banks, the third banker said.