CEA Subramanian emphasizes infrared growth and tackles crony loans
Chief Economic Advisor KV Subramanian on Tuesday urged financial institutions to avoid crony lending and focus on high-quality loans for the creation of assets that will help the country grow into a $ 5,000 billion economy.
Observing that the Indian banking sector since the early 1990s had faced the problem of poor quality loans, especially on large loans, he said, loans were not made to most creditworthy borrowers but to crony capitalists, causing great distress.
“When the financial sector decides to lend to a particular borrower who is more connected even though that borrower may not be the most creditworthy, it means that the capital is not provided. There is an opportunity cost because the capital is not intended for a more solvent borrower, ”he said at an event organized by the chamber of industry FICCI.
It is the duty of the financial sector to ensure that an optimal allocation of capital occurs in the economy, he added.
It should be noted that the problem of bad loans in the banking sector is largely due to the high exposure of banks to infrastructure which was facing problems in several respects.
“I think it’s extremely critical now that the financial sector takes on this responsibility of providing high quality loans, especially on the infrastructure side, and really avoids crony loans… I think that’s basically the mantra. the financial sector, ”he said. recommended.
He also suggested strengthening corporate governance in the financial sector to ensure high quality loans and link top management incentives to quality loans.
“Incentive mechanisms must be put in place to prevent crony lending, as infrastructure projects involve high gestation periods,” he added.
Financial institutions should avoid perpetuation and zombie loans, as they block the capital of creditworthy borrowers, he added.
Subramanian said that the development of financial institutions will play an important role as infra financing requires very specialized expertise.
The government has proposed to create a ₹Development finance institution (DFI) crore of 1 lakh to accelerate infrastructure financing activities.
The infrastructure financier, to be called the National Infrastructure and Development Finance Bank (NaBFID), must anchor the ambitious National Infrastructure Pipeline (NIP).
Around 7,000 projects have been identified under the NIP with an expected investment of a huge ₹111 lakh crore in 2020-25.
Speaking at the event, President of the Indian Insolvency and Bankruptcy Board, Mr. S. Sahoo, said that of the 4,000 companies that have been admitted for insolvency, 2,000 companies have completed the process.
Resolving distressed assets earns more value than liquidation, he said, adding that in some companies it has been up to 300% greater than liquidation value.
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