Banking growth runs parallel with economic growth: Bankers

The RBI governor D Subbarao today hinted the new bank license rules may allow corporates to promote banks.  Speaking at the FICCI-IBA banking conference he said that as the country contemplates allowing corporate groups to promote banks, there is a need to strengthen rules that prevent banks from lending to interested or promoter groups and directors.  The draft new rules are expected to be issued by the RBI end of this week or early next week.  Naina Lal Kidwai, group general manager and country head of HSBC India, SBI chairman Pratip Chaudhuri and Chanda Kochhar, managing director and CEO of ICICI Bank shared their views with CNBC-TV18 on this issue.  Kidwai said that inflation is a main concern right now and raising interest rates haven’t helped taming inflation.  “There are multiple factors around inflation. Food inflation has everything to do with logistics, supply and people eating better which is great. But what are we doing to improve the food chain on vegetables, fruits, meat and getting them to consumers in a low cost way,” questions Kidwai. She feels that these issues won’t get resolved by hiking interest rates. Chaudhuri feels that in the global banking crisis, the risk takers were not responsible for taking those risks. “So, the people who originate the risks are asked the right questions because all the time you cannot take a favourable outlook and say everything will work out well,” he said adding that it is important to look into the downside adequately. He said further that at the global level, the regulators would increasingly focus on capital as a ratio to the risk and hence, that aspect has to be drilled down to the micro level. In Kochhar’s view, the size of the banking sector is always related to the size of the economy per se. She says, if India can grow at about 8% per annum over a long term and the banking sector normally grows at 2.5 times the GDP multiple, then it means the banking sector can continue to grow at 20% per annum for many years to come, which means that the banking industry which is today say about Rs 40 trillion can become around Rs 200 trillion by 2020; five times by 2020. “Yesterday’s report also said that India may have the third largest banking sector by 2025. So it is size in relation to the growth in economy and not just size per se,” added Kochhar. 

Moneycontrol