Latest News | Banks Thinking Like Equity Investors, Looking at Promoter Details Before Giving Loans Now: Axis CEO

Mumbai, Dec 11 (PTI) The COVID-19 pandemic has made banks adopt an equity investor's approach while evaluating loan proposals and go through granular details like the history of a promoter to avoid past mistakes, Axis Bank MD and CEO Amitabh Chaudhry said on Friday.

Speaking at an event hosted by XLRI, Chaudhry said this change after the pandemic has been driven largely by past experiences and is aimed at restricting the quantum of non-performing assets (NPAs) that banks are saddled with.

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Excesses following the 2008-09 crisis have led to a huge quantum of NPAs and the RBI had to launch an asset quality review to ensure banks' balance sheets reflect true strengths. There have been a slew of allegations of misconduct, where bankers connived with promoters while making loans and ultimately causing losses as the NPAs ballooned.

"After learning from the past, banks are doing a much more detailed analysis, a look back into the history of promoters in general.

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"We are trying our level best to find out more about how does the promoter think, how has the promoter behaved in a crisis? What kind of loans promoters has at the holding company level?" Chaudhry said.

Other factors at the promoter level which are being checked are the leverage with which a promoter works, their other businesses and number of family members involved in a business, among others.

"Banks are generally becoming more cautious. It means that the promoters with the right pedigree, right background and right business model, leverage are the ones who will get the money and they will get the money at a very cheap price. People who are not doing it will find it very difficult," Chaudhry made it clear.

Similarly, expanding on the earlier practice of taking sectoral calls while lending, banks are looking at a much more granular level by going into sub-sectors as well, he said.

Citing the case of the hospitality sector, which has been battered by the pandemic, Chaudhry said banks will now evaluate parameters like mix of guests, location of property, type of hotel and historical seasonality of occupancy.

"Some of these factors are what the equity investors look at. So, what are the banks doing? Because we have suffered in the past, we believe and we think that we could become the equity investors of tomorrow if we don't get into the level of granularity," he said.

Chaudhry further said loan delinquencies are definitely bound to go up across the board because of the impact on economic activity and the otherwise resilient retail segment will also be witnessing reverses as jobs are shed and salaries get cut.

He said lenders, including Axis Bank, have raised comfort capital in order to assuage concerns of the market and also the regulator, and are now ready to deploy loans for growth.

However, he added that according to some estimates, waiving interest on all the loans during the pandemic will result in a Rs 6 lakh crore hole and the bank balance sheets will not be able to take the shock.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)