Money & Banking

Bank credit must grow 12% year-on-year for India to become a $5-t economy: SBI

Our Bureau Kolkata | Updated on September 20, 2019 Published on September 20, 2019

Mega mergers will help strengthen the nation’s banking system, says MD

Dinesh Kumar Khara, Managing Director, State Bank of India, said that bank credit must grow 12 per cent on year-on-year basis till 2024 if India has to become a $5-trillion economy. Bank credit, which is at ₹98-lakh crore at present, should go up to ₹400-lakh crore to be able to achieve the target.

Supporting the mega bank merger move by the Finance Ministry, he said that the move would help strengthen the country’s banking system and help achieve the target of becoming a $5-trillion economy.

“Though mergers create initial pain points, the benefits in the long run, will far outweigh the former, and an efficient use of capital and manpower will help the economy evolve into a globally significant one,” Khara said at a banking colloquium organised by CII here on Friday.

Citing the example of the SBI merger, he said that the process helped in rationalising the number of branches, optimising staff strength, pooling skill-sets, and boosting the financial health of the merged institutions. The bank has saved ₹4,350 crore in rationalising human resources and bank branches, ₹1,800 crore from other savings and treasury operations, and ₹400 crore through reduction in cost of resources.

Private sector investment

Sujit Kumar Verma, Deputy Managing Director, State Bank of India, said that private sector investment, which has been largely muted in the last 12-18 months, is expected to pick up starting October. “The moment the government starts large infrastructure spending, corporate investment is bound to come; it is just a matter of time,” he said.

Private sector investors or corporates have not been investing despite having the capacity to do so as they are not very confident of sustained demand.

The government’s announcement on Friday to slash the effective corporate tax to 25.17 per cent, inclusive of all cess and surcharges for domestic companies, will be a good incentive for corporates to invest.

“This (announcement) is something that will open up new avenues for corporates to reconsider because the profits that will be available for corporates to pay dividends or to invest will be higher. So, it will be an added incentive for corporates to invest,” he said.

The timing of the announcement also coincides with the festival season, which is when credit demand picks up traditionally.

Rural growth

The demand side will also be taken care of with consumer confidence coming back once people are confident about having sustained jobs. Besides, the government is also looking at ways and means to spur the rural economy.

“Demand is also affected as disposable income in the hands of the rural population has come down. Inflation is at an all-time low, so the remuneration that a farmer gets for his produce is commensurately lower, and so his disposable income is lower. So, I think, in some way, the government will try to put more money in the hands of rural people,” he said.

The good monsoon this year is likely to lead to better crops and, hence, higher disposable income.

An improved investment climate will attract more investments – both domestic and foreign – which, in turn, will improve job creation, leading to higher savings. This will help bring in more investments, resulting in a multiplier effect.

“The government has done everything that is possible and will possibly have more ammunition. The government does not want to exhaust all its ammunition in one go, and that is why they are doing it in phases,” he said.

Published on September 20, 2019
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