Though well-capitalised, the banking system will require fresh capital of $70 billion to support India’s ambition to become a $5-trillion economy, State Bank of India (SBI) chairman Dinesh Khara said.

Khara said banks should continue to stay as attractive as they have in the recent past for investors and should also be in a position to raise additional tier-I (AT1) capital at a fairly reasonable cost.

Speaking at Fibac 2021, a conference organised by industry body Ficci and the Indian Banks’ Association (IBA), Khara said the corporate lending landscape is  undergoing significant changes. Over the last few years, corporates have deleveraged to the tune of almost Rs 2 lakh crore as they were able to tap the markets for funds.

Bank credit, however, has huge space for growth. “Bank credit to gross domestic product (GDP) ratio is around 56% while the corporate debt to GDP ratio is about 90%. In developed markets like the US, the private debt to GDP ratio is as high as 200%. So there is a huge scope for further raising of debt by corporates to support their economic activities,” Khara said. 

While banks have a responsibility to fund infrastructure, there is a need to popularise ‘takeout financing’, Khara said. This can be done not just through national infrastructure banks but also through market mechanisms like alternative investment funds (AIFs) and infrastructure investment trusts (InVITs).

In takeout financing, new lenders take over project loans of existing lenders, stretching the loan’s repayment over a longer period.

On co-lending, Khara said SBI has signed a few agreements with some non-bank lenders for last-mile reach. SBI’s recent deal with Adani Capital for co-lending to farmers has attracted criticism as many have questioned the need for such a large bank with such a wide rural reach to partner with a much smaller non-banking financial company (NBFC).

“Very often it is talked about that with SBI having 65% of its branches in rural and semi-urban spaces, where is the need for co-lending partners. I think we still do need them. The reason is the last-mile connect which is with these partners who are operating in a particular geography or a niche area, where they have adequate information about customers and borrowers," Khara said.