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Indian Financial Sector capable to Lead Economic Growth: CEA

Technology usage can be far higher in financial sector, NBFCs to adopt data analytics, AI and ML to become globally competitive said Dr K. Subramanian, Chief Economic Adviser, Govt of India

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Dr Krishnamurthy Subramanian, Chief Economic Adviser, Govt of India said that the Indian financial sector has the capability to lead the economic growth. “No country has been able to grow fast over a long period of time without the financial sector leading the growth. The financial sector should have growth rate of 1.5 times as compared to the country’s growth rate. In India, the financial sector has to lead the growth,” he added.

Addressing the virtual session of FICCI’s 1st NBFC Summit – NBFC Sector in India: Preparing for the post COVID-19 world’, Dr Subramanian emphasized on the need for the NBFCs to use data analytics, AL and ML on a sustained basis in order to become globally competitive. “This is where the opportunity and disruption are happening, especially the way the economy is digitizing in India. Use of technology can be far higher in the financial sector. While these technologies are used extensively in the retail lending, but they are not commonly used in large corporate lending,” he added.

Highlighting the importance of newer technologies, Dr Subramanian said that tracking related party transactions, tracking the pledged shareholding of the promoter, quality of financial statement, all of these can let NBFCs infer not only the ability to repay but also willingness to pay as well. “The need for relying on such data is very important,” he added.

Dr Subramanian stressed on the need for Indian banks to also become globally competitive. “Global top 100 banks have 18 Chinese banks and India with the fifth largest economy in the world has only one bank (SBI at 55th rank). The Indian financial sector is like the 1990’s cricket team which could write a lot about its domestic achievement, but not much when it went outside. The Indian financial sector cannot be punching so below its weight,” he noted.

He also said that the ratio of credit to GDP in India is still around 52 percent, whereas the OECD average is 160 percent, and we are one-third of that average. This ratio in the North East is even less than 10 percent. “Especially for the financial sector in India, miles to go before we sleep,” Dr Subramanian added.

He stated that at an individual level, every NBFC needs to monitor its rollover and inter-connectedness risks. “NBFCs need to take steps to contain risk in zombie lending and have to take financial inclusion to the bottom of pyramid. Forbearance is necessary during this time, but zombie lending can come back to bite later,” said Dr Subramanian.

Rashesh Shah, Past President, FICCI and Chairman & CEO, Edelweiss Group said that we are going from a single way to a multiway highway in financial services sector in India. He also emphasized that the credit in India should grow at least at 10-12 percent (which currently is around 4-5 percent) for India to achieve the $ 5 trillion economy mark.

Shah further mentioned that though there is enough liquidity in the system still we are not seeing liquidity getting converted into credit flow. “We need availability of long-term credits for investments to happen,” he added.

Rajiv Sabharwal, Chairman, FICCI National Committee on NBFC and MD & CEO, Tata Capital Ltd said that while the industry was grappling with the issues of asset quality and liquidity over the past couple of years, after the pandemic, managing these issues has become more challenging. He said that there is an imperative need to decouple NBFCs from banks on the liabilities side and broaden their options for raising money to support the growth.

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economic growth