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Quality of lending has been a key problem: CEA Subramanian

Quality of loan is critical for banking sector

India is now focusing on growth through infrastructure in a sustained manner, chief economic adviser KV Subramanian said.

“This is the time when the financial sector should take leadership role and assume the onerous responsibility for infrastructure growth. For the macro economy, financial sector plays a very critical role,” he said, while addressing a virtual session on ‘Distressed Debt in Indian Infrastructure Sector – Special focus on EPC’, organized by industry body FICCI.

Speaking on distress in the infrastructure sector, Subramanian said that since the early 1990s the key problem of the Indian banking sector has been the quality of lending, especially pertaining to large ticket loans.

“Banks need to ensure that capital allocation to the infrastructure sector is to credit-worthy borrowers. Crony lending has been a problem in the banking system. The Economic Survey also highlighted that the banking sector’s problems originated from large loans that were not necessarily lent to the most credit-worthy borrowers. This problem gets far more accentuated in the context of infrastructure. Financial institutions especially need to be working on this,” he added.

Subramanian also said that crony lending has been one of the key challenges. “Financial sector in India has to take responsibility that it is the ultimate arbiter of capital and ensure optimal capital allocation,” he said.