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The ever-mounting non-performing loans (NPLs) of Indian banks is a growing concern and banks have to take the “tough medicine”, while the lack of a long-term bond market is strangulating mid-sized companies in India.
Separately, the ongoing US-China trade war will benefit India if the country eases the difficulty of doing business here, according to Henry R Kravis, co-founder of global investment firm Kohlberg Kravis Roberts (KKR).
“You have NPLs in banks, you can pretend everything is fine but that’s a mistake in my view. Take the tough medicine, code them as good bank-bad bank, and then cool off the bad loans. Then you have really done a very good asset quality stress test,” said Kravis, who is also the co-chairman and co-CEO at KKR.
“If that is done, then the banks can raise real capital, from the government or private sector, to replenish the hole in their equity base and start lending again. Right now, everybody’s frozen and that’s not good for any country. Everybody wants to push it under the rug and hope it gets better, but it does not,” he said.
Speaking to a group of select media persons, Kravis said this experiment was tried and found to be “successful” in Europe.
“I would encourage the banks to do it here; I would encourage the government to do that here. Because the drip test of putting good money after bad money never pays off and you are just compounding the issues.”
An absence of a large bond market limits growth as when banks run out of capital, large companies would find capital, but this will strangulate small and mid-sized companies, Kravis said.
“You (India) have no capital market here, you have a stock market of sorts, but you don’t have a bond market. If you don’t have a long-term bond market, you limit growth because you are putting all the onus back on the banks to basically be the provider of capital,” he said.
“I am a believer that the country should have a broad and deep capital market,” he said, adding this was the reason for KKR to set up two non-banking financial companies (NBFCs) – one for real estate credit, and another for corporate credit.
US-China trade war
On the ongoing US-China trade war, Kravis, who co-founded KKR in 1976 and now has $195 billion of assets under management globally, said this would be positive for India.
“This is very positive for South East Asia, this is very positive, in my view, for India.” But regulations have to be simplified as it is “still difficult to do business here”.
“In India, everything is going in the right direction. India has a young population, which is also beneficial to the country,” he added.
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