Market is rejoicing that credit growth is back. But it was not the doing of the banks. Instead it seems to be lender's market with long wait for credit approvals and straight jacketed approach followed by banks. But times can change to Borrower's market very soon. Sumit Kakkar shares his perspectives
All cycles have a duration! This is cliched, but banks need to realize that soon this will turn from a banker’s market into a borrower’s market! The flip will happen suddenly.
In the last 25 years of banking, I have seen relationship managers going from pillar to post to get assets – trying to get face time with customers, convincing the borrowers, subsequently dealing internally with their credit and risk teams for approvals, and taking a sigh of relief on the final disbursement. In normal times, this process would take 3-5 weeks.
It is therefore interesting to note that currently the customer acquisition and credit approval process is taking months! Lately, I hear long-standing customers lament about heavyweight banks not turning up for meetings or e-calls, not disbursing sanctioned limits, and requests for genuine requirements within their eligibility are being turned away.
Banks are enjoying being in the spotlight. They seem to have adopted a very templated approach to lending – with minimum rating thresholds, no history of moratorium, minimum collateral coverage, and allowing incremental limits only up to a small percentage of existing limits without giving weightage to fresh business opportunities.
Times seem to have changed. I only hope this is temporary!
In the last 6 months, Bank NIFTY has grown from 20,500 to 35,800 levels, which is a whopping 75% growth. Market is rejoicing that credit growth is back, and the stress book looks far lower than anticipated and is well contained. Most of the disbursements in recent months were taken care of by the government and regulatory dispensations on TLTRO and ECLGS schemes. It was not the doing of the banks! Reports suggest that approximately 2 lakh crores of ECLGS loans have been disbursed. Hence, a significant part of the asset growth can be attributed to the same.
This happens once in a decade when banks have an upper hand! Today may seem like a lender’s market – but this is likely to change soon. The market has a way of finding opportunities, and the government and regulators won’t come to the rescue. The eyes would roll back on banks to deliver for the street to perform, since bank stocks constitute over 30% of NIFTY. The management philosophy will switch from conservatism to growth at any cost! The economy is flush with liquidity.
I recall a conversation with a top and revered banker, whom I respected a lot – he said that when creditworthy companies need money in difficult times, leave something on the table – don’t try to take advantage of the situation. This gesture will be remembered for life and result in recurring business opportunities. This is true in all respects of life!
I can hear from the chatter of the regulators allowing alternative channels to become active in the lending market. There is already a discussion paper on liberalizing the AIF route to fill the gaps in lending. PSU banks have learned their lessons and have robust balance sheets, the private banks will face the challenge – for whom stock price matters the most. The management calls and sermons are changing as investors’ outlook is changing.
Reminds me of a song by Bob Dylan- The times, they are a-changing!
