MUMBAI: Axis Bank MD & CEO Amitabh Chaudhry, said the DHFL default has turned lenders risk-averse and that reforms are needed to generate funds required for the Rs 100-lakh-crore infrastructure projects planned by the government.
Delivering the A D Shroff memorial lecture on ‘Who will finance risk in India’, Chaudhry said that to achieve the government’s target of $5-trillion economy, the growth rate would have to more than double to 12%, while Axis Bank’s projection was that it would grow by less than 6% in the next fiscal.
According to Chaudhry, funding will have to come from entrepreneurs, banks, new financial institutions, foreign investors, insurance and pension funds. Highlighting the risks faced by lenders, Chaudhry gave the example of DHFL.
“Last year, the wholesale loan book was declared to be Rs 22,000 crore. By December, it became Rs 32,000 crore and the latest number is Rs 45,000 crore,” he said. Pointing out that the company’s bonds were trading at a 75% discount, he said this was a company that was publicly quoted, audited and rated by agencies. “Please understand that A bank or anyone who deals with a company are relying on some systems to do their job. When you find the wholesale book has doubled in size and there are a hundred thousand fake accounts, the faith in the system gets shaken,” said Chaudhry. This then leads to banks stopping funds to companies like DHFL. According to Chaudhry, lenders are not in a position to take such large losses on an account where there is not much scope of recovery from DHFL’s wholesale loans. Highlighting the need for investment-driven growth, Chaudhry said the current slowdown has manifested in several ways — consumer goods, cars, real estate, electricity. While the country needed capital, there were challenges. These included, the ability to create jobs, technical challenges, the robustness of institutions, the availability of capital, and the linkage in various networks of economic value. “We have political risks; cancellation of licences, large tax demands, abandonment of projects from previous regime. The manifestation of political risks shows up in the sanctity of contracts. Sudden and sharp changes not just from administration but also from judiciary can throw economic system into peril,” he said.
February 11, 2020