Aditya Puri, the managing director and CEO of HDFC Bank, the country’s second largest private sector lender, is sitting pretty in these troubled times as his bank always followed a conservative policy in doing its business. Puri says banks’ ability to support the economic agents is restricted by the deposits they can mobilise. In an interview with Rajendra Palande, Puri emphatically says the banking system cannot support SMEs that have turned unviable due to the macro-economic conditions.
Banks have limitations
The banking system cannot be expected to make up for all the other sources of funds that have dried up, unless you put in more liquidity. The government has to step in and do infrastructure spending. The banking system will only grow as much as the deposits grow. I am not here to do magic. If your demands from the banking system are more, then I am sorry I cannot lend.
Banks lending more than deposits
Our lending is growing faster than deposits. Your expectations are more than what the banking system can do. As long as banks lend more than they collect, what more do you expect? Maybe, the economy needs more money than the banks have.
Banks are not magicians. Increased government borrowing will crowd out the private sector. Today, 25 per cent of deposits goes in SLR, 5.5 per cent in CRR and 40 per cent goes in priority sector lending. What more you want banks to do?
I am a trustee of the depositors. The money I have is not mine. Unless a business is a viable enterprise, it is not my job to lend. If an SME has got into temporary difficulties because of change in business environment and if the unit establishes that it viable, I will definitely restructure or lend because it is beneficial to the SME, it is beneficial to me as a bank, it is beneficial to my depositors and it is beneficial to my shareholders. If your business model itself has become faulty, then I will not lend.
If you were exporting and your exports have stopped, what will I do restructuring your loan?
What’s the way out
Banks can be involved in restructuring only in viable projects. Let them (SMEs) bring equity. I am saying if you have to make a business viable, let’s do it jointly. It all depends on how the business was managed. Companies which set aside some money for bad times, will go through. SMEs that did not build any cushions will have to bring back the money they took out from the company.
Lending rates to fall
It is a matter of time. By January, you will see further reductions in lending rates. Liquidity was infused, so we reduced our deposit rates. It will take some time for it to reflect in our cost of funds. If the current easy money conditions continue and the inflation continues, I expect these reductions to continue on a monthly basis. It would take another 3-4 months to achieve the full potential.