Chief economic adviser (CEA) K V Subramanian suggested that use of technology, especially data analytics, Artificial Intelligence (AI) and machine learning can help improve the quality of assets.
He also said the non-banking financial companies (NBFCs) need to follow prudential measures so that rollover risk and interconnected risk do not mount and also monitor the quality of lending in these difficult times.
Speaking at an event organised by FICCI, he said NBFCs need to be careful about rollover risk or the asset liability mismatch and interconnected risk.
"While regulators are mandated to monitor these things, at individual level every NBFC needs to monitor its rollover risk and interconnected risk as well because in times like these prudential measures must be taken by each NBFC to ensure that risks do not mount," he said.
"Another key aspect that must be kept in mind is that forbearance is necessary at this point of time but previous episode of 2008-09 (global financial meltdown) illustrates very well the kind of zombie lending that continued...evergreening happened that basically came back to really bite three-four years later," he said.
During this difficult period, he said, NBFCs and their board should be vigilant about the lending.
Talking about opportunities, Subramanian said the Bilateral Netting of Qualified Financial Contracts law that has been passed recently paves the way for credit derivatives.
It is a big move, he said, adding, bunch of reforms undertaken by the government in the agriculture and manufacturing sector to provide opportunities to the sector.
Observing that the financial sector plays an important role in the growth of the economy, like it happened during the growth phase of Japan, he said.
"If you look at the Japanese economy in the 1980s, when it grew really well, of the top 25 banks globally, 18 banks were Japanese. If you look today, of the top hundred banks globally, 18 are Chinese. And yet the 5th largest economy in the world has only one bank in the global top hundred," he said.
State Bank of India (SBI) at the 55th position is the only bank in the global top 100 list.
"We seem to have quality problems in the financial sector, despite the really small scale at which we operate...We have so many problems, I think it is basically indicative that we are not doing enough in thinking about how to use data analytics, AI, machine learning. We've only scratched the surface," he said.
Use of technology can be far higher in the financial sector, he said, adding, there are tools that actually can enable us to infer not only the ability to repay, but the willingness to repay.
For instance, he said, while technology and data analytics has been used in retail lending, there hasn't been that much use of it in large corporate lending.