HDFC Bank MD Aditya Puri: There is adequate money in system to fund India's economic growth

HDFC Bank Ltd's MD Aditya Puri, in an interview with Bloomberg revealed that, as far as non-bank financiers (NBFCs) are concerned, the danger of a full-blown financial crisis has passed even though some of the after-effects are lingering and that they will face some amount of trouble for at least another year. 

Puri explained that tighter regulatory oversight and asset sales have staved off the worst of the problems afflicting India’s non-bank financial firms following last year’s defaults by Infrastructure Leasing & Financial Services Ltd. He added that it will take another 12 to 18 months before liquidity issues in the wider sector are resolved.

"It’s not a Lehman-like thing that comes and then there is contagion across the system," Puri said in the interview, referring to the US firm that collapsed a decade ago and plunged the global economy into a downturn. "The crisis is over, the problem remains." India could have faced a similar crisis last year when defaults by IL&FS exposed fault lines among India’s shadow lenders, which had grown rapidly to account for a third of all new loans over the previous three years.

HDFC Bank has an exposure of about $7 billion to non-bank finance companies and related firms, compared with $11 billion for its nearest private-sector rival ICICI Bank Ltd. The exposure of the wider Indian banking industry was about $92 billion in March, according to an estimate from the ratings firm ICRA Ltd. 

The situation at HDFC Bank is comfortable with Puri saying that the bank had no exposure to IL&FS. He said that banks have made “substantial progress” in dealing with non-performing loan problem and pointed out to better recognition of soured debt, closer central bank inspections and more disciplined behavior by borrowers after the implementation of the nation’s new bankruptcy law. 

Puri believes that this gives the government a window to add fresh capital into struggling state-run banks. For now though there is an adequate amount of money in the system to fund India’s economic growth, Puri said. “When new capital investment comes into the private sector, the demand could possibly be slightly more than what the capability is, by which time I hope they would have infused the capital.”