When the economy is booming, banks are among the biggest beneficiaries due to a surge in demand for credit. Conversely, when the economic growth shifts into a lower gear, banks feel the heat first. The risks are twofold: high rates of interest hurt demand for loans and lower profits. At the same time, there is also the risk that some of the existing borrowers may default on interest payments.
Macro-indicators over the past few months have been mixed, but an economic slowdown seems very much on the cards. And so is the fear of a rise in the non-performing assets of the banking industry in general.
But this time, the risk may not emanate from the large corporates, feels MV Nair, chairman and managing director (CMD) of Union Bank of India.
“This time around, corporates have managed their balance sheets better. Where it may impact is the mid-corporate and small and medium enterprise to some extent. The challenge for banks this time would be to monitor their accounts very closely wherever the strains are coming up, so that we are able to restructure and give them an opportunity to service their debt properly,” said Nair, in an interview to moneycontrol.com.
Under Nair’s watch, total business (loans + deposits) have grown three-fold
to Rs 3,55,000 crore in the last five years. Nair, who got into the saddle at Union Bank in 2006, is widely credited with makeover of th read more