Bank should pump in more money into NBFCs: Kanoria

The current financial year hasn’t gone well for the non-banking finance companies (NBFC) across the country owning to slowdown in business, sagging consumer demand and credit crunch. In an interview with TOI, the chairman of Srei Infrastructure Finance, India’s one of leading NBFCs, Hemant Kanoria, spoke on a range of issues from measures needed for jump-start the sector to future plans for his own group.Excerpts.
Q. In your opinion, what is the single-biggest factor behind the slow economic growth?
A: The lack of credit is hurting the economy most. Banks, for instance, currently have liquidity close to Rs 4 lakh crore, which they are not lending because of apprehensions. We need to bring back the confidence and encourage banks to release this money into the system. NBFCs, on the other hand, do not have sufficient liquidity for lending. These factors have resulted in a situation where credit flow has become constricted. This issue needs to be addressed to revive the economic growth of the country.
Q. What needs to be done to revive the flow of credit to sectors like infrastructure?
A: Infrastructure financing and investments entail a long-term perspective with an absolute clarity on viability, liquidity, dispute redressal and appropriate exit timing. The confidence of the investors and financial institutions/banks get reinforced if all the above are functioning in sync with each other. However, at this juncture, there are some gaps. The government is aware of the issues and is trying their best to find solutions. As soon as the issues are addressed, financial investors will be back with gusto.
We need to encourage banks to restart lending. Bankers are apprehensive in lending due to stringent guidelines and fear of an account going bad. If the customer is errant then the lender must initiate appropriate legal actions; but such instances are rare and probably account for only 1-2%. Hence, we need to change our mindset; majority in the system do not commit fraud and we have to build up a relationship of trust. As a lender when we support borrowers during a down cycle, then our money is safe, as the borrower is able to come out of the adverse situation. The regulator should consider reviewing the existing NPL norms in view of the present economic situation.
Q. Do you expect the government to step in and announce more steps to revive the economy?
A: While the Budget captures the government medium to long term vision, we hope that measures to address the liquidity issue will be announced soon. The government must also fast track the approval process in order to increase economic activities. We have suggested a model of deemed approval which should be introduced in every sphere. The tortuous, laborious and lengthy process of getting approvals creates fatigue, frustration and unviable cost escalation for every project or investment. I am confident that if few of these simple tweaks are implemented, then India can quickly go back to GDP growth of 9-10%.
Q. Are foreign investors still exploring investment opportunities in India?
A: At this juncture, there are primarily the stressed asset and vulture capital funds that are currently eyeing investment opportunities in India. The reason being the valuations are extremely low as most of the Indian companies and assets are in distressed or stressed situation. So, these funds are looking at opportunities where they can acquire companies/assets for 10-20 cents to a dollar. In a way it implies that we are selling assets/companies cheap.
Q. Coming back to Srei, which will be your focus area for growth?
A: For last few years, our focus has been to grow our equipment finance portfolio. We are seeing a silent recovery in demand for equipment, which had fallen by 25-30% in the last couple of years, especially since the episode. The government is seized of the slowdown in infrastructure investments and the economy. So, we are sanguine that the demand will pick up soon with awarding of new EPC contracts.
Q. So, you have decided to exit your infrastructure project financing business?
A: Srei board, in the year 2014-15, had taken a decision that they will reduce the infrastructure project financing portfolio gradually over the years due to increased risks in the sector. We are the veterans in infrastructure financing sector and it will be sad if at an appropriate time we do not make a comeback.
Q. Will you enter into any new businesses, like retail finance?
A: Unless and until there is clarity on the liquidity front it is not wise to venture into new businesses. At Srei, we have comfortable liquidity from the perspective of repayment of our liabilities. Hence, we will wait and watch the situation before starting a new business.