MUMBAI: At a time when stock indices are hitting record highs and companies are off to a great start, a senior policy maker on Wednesday said India needs strong support. debt capital like Bank loan for long-term economic development.
Principal Economic Adviser Sanjeev Sanyal Said that banks have now been cleaned up and need to expand credit faster to support the economy, stressing that the country needs sizable lenders.
NS stock market index Breaking the previous highs and companies like Zomato have recently started dazzling on the exchanges.
Sanyal said, “Finally, if you look at economic history, there has never been rapid economic growth over a long period of time, only equity markets financed that growth, it eventually happened with debt capital, its A lot is coming from banks,” Sanyal said. Speaking at an event organized by FIDC, the lobby group of non-bank lenders.
Pointing out several issues by start-ups and other companies, he said, access to risk capital through equity markets is in a good position. The debt market is also not doing too badly, he said, underlining the fact that the corporate debt market is less developed.
Sanyal said that India needs a much bigger banking system than it is now if growth is to be sustained for decades. He said that banks should expand their lending activities.
Despite the stimulus, bank credit growth is still at a low six per cent after the lifting of pandemic restrictions, perhaps due to low demand and policymakers already planning ‘credit fairs’ for lending.
Sanyal said the banking system has been cleaned up before the Covid-19 crisis, making India one of the few economies that have a system in place to support growth.
“We are well capitalized for the banking system which is in a position to expand again after several years of clean-up. NBFCs (Non-Banking Financial Companies) will also be in a good position for the most part,” he added.
He said that China has grown rapidly in GDP over the past three decades which was driven by the expansion of bank balance sheets. The senior Indian policymaker also said the impact of Chinese developer Evergrande’s downgrade on the broader Asian financial markets would have to be seen.
The broader financial system, including credit rating agencies, analysts and the media, needs to behave in a “responsible” manner to allow this credit expansion to happen, he said.
He said that the credit rating agencies do not face any problem and when it comes to the fore, they create big problems by downgrading which causes a wider problem.
At a time when regulatory demand for NBFCs is increasing, Sanyal said, “we must be careful not to impose full-scale bank-like requirements on such companies operating because of flexibility”. However, he acknowledged that large sized individuals classified as systemically important entities would have to adhere to certain criteria.
On the economic front, Sanyal assured that there is a high surveillance on the feared third wave of infection aspect and added that it has already affected Kerala. He said that the second wave had also hit a state earlier before it spread and the government would be on alert.
Drawing attention to the fiscal data, Sanyal said there are fiscal resources “if needed” to “step up the accelerator”. He added that monetary resources are also available to boost demand as rates in India are not close to zero like in some developed economies.
After two deep policy rate cuts in the early weeks of the pandemic, the RBI has remained status quo on rates and has been forced to adopt other unconventional measures to prop up growth due to high inflation.
Sanyal said the government is already running the largest vaccination campaign in the world and added that the development process benefits from the opening up of more areas.
He said that despite the political backlash over agricultural laws, the government stands its ground and will look into whether the issues are “legitimate concerns” and address them.
Principal Economic Adviser Sanjeev Sanyal Said that banks have now been cleaned up and need to expand credit faster to support the economy, stressing that the country needs sizable lenders.
NS stock market index Breaking the previous highs and companies like Zomato have recently started dazzling on the exchanges.
Sanyal said, “Finally, if you look at economic history, there has never been rapid economic growth over a long period of time, only equity markets financed that growth, it eventually happened with debt capital, its A lot is coming from banks,” Sanyal said. Speaking at an event organized by FIDC, the lobby group of non-bank lenders.
Pointing out several issues by start-ups and other companies, he said, access to risk capital through equity markets is in a good position. The debt market is also not doing too badly, he said, underlining the fact that the corporate debt market is less developed.
Sanyal said that India needs a much bigger banking system than it is now if growth is to be sustained for decades. He said that banks should expand their lending activities.
Despite the stimulus, bank credit growth is still at a low six per cent after the lifting of pandemic restrictions, perhaps due to low demand and policymakers already planning ‘credit fairs’ for lending.
Sanyal said the banking system has been cleaned up before the Covid-19 crisis, making India one of the few economies that have a system in place to support growth.
“We are well capitalized for the banking system which is in a position to expand again after several years of clean-up. NBFCs (Non-Banking Financial Companies) will also be in a good position for the most part,” he added.
He said that China has grown rapidly in GDP over the past three decades which was driven by the expansion of bank balance sheets. The senior Indian policymaker also said the impact of Chinese developer Evergrande’s downgrade on the broader Asian financial markets would have to be seen.
The broader financial system, including credit rating agencies, analysts and the media, needs to behave in a “responsible” manner to allow this credit expansion to happen, he said.
He said that the credit rating agencies do not face any problem and when it comes to the fore, they create big problems by downgrading which causes a wider problem.
At a time when regulatory demand for NBFCs is increasing, Sanyal said, “we must be careful not to impose full-scale bank-like requirements on such companies operating because of flexibility”. However, he acknowledged that large sized individuals classified as systemically important entities would have to adhere to certain criteria.
On the economic front, Sanyal assured that there is a high surveillance on the feared third wave of infection aspect and added that it has already affected Kerala. He said that the second wave had also hit a state earlier before it spread and the government would be on alert.
Drawing attention to the fiscal data, Sanyal said there are fiscal resources “if needed” to “step up the accelerator”. He added that monetary resources are also available to boost demand as rates in India are not close to zero like in some developed economies.
After two deep policy rate cuts in the early weeks of the pandemic, the RBI has remained status quo on rates and has been forced to adopt other unconventional measures to prop up growth due to high inflation.
Sanyal said the government is already running the largest vaccination campaign in the world and added that the development process benefits from the opening up of more areas.
He said that despite the political backlash over agricultural laws, the government stands its ground and will look into whether the issues are “legitimate concerns” and address them.
.