Banks seek govt guarantee for lending to some sectors – The Financial Express

Banks have asked the government to offer guarantees for lending to certain sectors amid the Covid-19 lockdown so that they have greater comfort while sanctioning loans, State Bank of India (SBI) chairman Rajnish Kumar said on Saturday.

Speaking with representatives from the real-estate industry over a video conference, Kumar said this guarantee-based model is ideal in the current circumstances.

“The risk capital comes from the government, liquidity comes from RBI (Reserve Bank of India) and the intermediation is done by the public sector banks. So that is a workable model because the risk appetite of the banks is limited,” he said.

Whether the government will be in a position to guarantee ending by the private sector or to restrict guarantees to lending by the public sector only is up to them, he added. It will be quite helpful even if the government guarantees only incremental lending to these industries.

“I believe there are various suggestions and the government has appointed various empowered groups so all that information will be gathered and analysed and then we can expect some package and an exit plan from the lockdown,” Kumar said.

The SBI chief further said that if the need arises, the banking industry may approach the central bank seeking an extension of the three-month moratorium on term loans and working-capital interest. While the RBI may consider extending the moratorium period by a month or two, they will be unlikely to kick the can too far down the road, he added. “Based on the situation the RBI may take a call, but we can’t expect them also to push down the risk too much. If there is a question of over-leveraging or loss prior to Covid period, they will not allow that to be restructured in the garb of Covid,” Kumar said.

via Banks seek govt guarantee for lending to some sectors – The Financial Express