Exhorting lenders to analyse the root cause of the bad loans problem, Banks Board Bureau Chairman Vinod Rai on Wednesday said there is need for a "banking redux" where sectors like infrastructure restart getting credit, failing which "we would be stifling growth".
"We need to go behind and investigate what has brought in this situation," Rai said, pointing out that banks lacked the necessary appraisal skill-sets and debt is being used by over-leveraged companies to fill in for their losses.
"How did we allow borrowers to over-leverage?" the former CAG told an audience of bankers at a Dun & Bradstreet awards event here this evening, even as he acknowledged that his views will not have many takers in the room.
"I think we have scripted a whole new principle of settling losses against debt. Equity did not find a place in any of this," he said, while appreciating the efforts being undertaken by banks since last year to clean up the mess.
Rai said banks have embarked upon an "uphill task" and bad asset recognition and resolution is a "tough job".
"This is an excellent opportunity. The emerging paradigm should ensure we close the chapter, learn from the mistakes and face the future with greater determination that this does not repeat. We need an entire new banking redux. It is time for us to bring a whole new banking renaissance," he said.
To start with, Rai said banks should provide the necessary credit to deserving sectors, especially in the physical infrastructure space like power and roads, where they have faced severe reverses.
"We would be stifling growth if we did not lend to the physical infra sector like roads, power, infra," he warned.
Rai pointed out that banks can begin this by resorting to "calibrated enthusiasm" while lending to the deserving sectors.