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Mr Percy S. Mistry

G. Naga Sridhar

Hyderabad, Sept.7 Banks should monitor growth in retail and mortgage portfolios in the context of credit squeeze in US and Europe, according to Mr Percy S Mistry, Chairman, Oxford International Group.

Talking to Business Line here, Mr Mistry said the recent “unnaturally speedy” growth in the mortgage and retail portfolio of banks such as personal loans and credit cards could mean trouble for banks in India too if it were not checked.

In the US, banks are reducing their exposure to SMEs, home financing and retail. “Personal loans that were being marketed through the post have become extinct. The NPAs and loan defaults are rising even as the net credit extension is contracting,” he said.

Observing that there are parallel trends in India, the noted economist said the ‘undeclared’ squeeze on personal loans, SMEs lending (especially by the private banks) and caution on housing finance are some indicators of what is in the store for future.

“Till date, the impact of US crisis on mortgage market and structured products is not so much. Some leading private banks, however, did expose themselves to trouble due to lack of a strong derivative market. But what is required now is more caution,” Mr Mistry said.

Measures such as offloading of the Government stake in public sector banks, strengthening of bond, currency and derivatives markets and limiting of the Reserve Bank of India’s regulatory role only to the monetary policy would improve the health of banks, he added.

The banks also need to improve their capital-base in a significant way.

“Over the next five years, infrastructure sector alone will require $500 billion of investment. Out of this, $100 billion could be equity and banks should gear up to fill the remaining gap,” Mr Mistry said.

More Stories on : Credit Market | Housing Finance

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