Davos: Dismissing concerns of high corporate debt exposures posing possible default risks to banks in India, top banker Chanda Kochhar has said loans have been mostly given for projects in investment phase and leveraging won't appear high once companies start generating cash flows.
Kochhar, MD and CEO of India's largest private sector lender ICICI Bank, also said the country's financial services sector, including banking, has got tremendous growth potential for the next few years.
Besides, she added, there will be great opportunities in the economy and its global linkages through Indian companies' overseas expansion activities.
"While there has been concern over high leverage in some segments of the corporate sector, the debt levels have to be seen in the context of the fact that many corporates are in an investment phase," Kochhar said in an interview, at the the annual meeting of the World Economic Forum here.
She said the companies' debt leverage would appear high only until the investments are completed and start generating cash-flows. "As the cash flows from the projects start, the debt levels will be sustainable and should moderate over time.
"What is important currently is to ensure that the projects under implementation get the necessary last mile clearances and linkages to ensure that the assets become productive on schedule."
Asked about her outlook for the Indian banking and financial sector, Kochhar said: "First of all, I would say that the Indian financial sector has tremendous growth opportunities over the next few years.
"The banking sector should grow at least 2.5 to 3 times the GDP growth rate, and the improvement in the GDP growth rate will drive growth in the banking sector.
"Secondly, India's growing global linkages, whether in terms of international companies investing in India or Indian companies going overseas, will provide a growth opportunity for Indian banks.
"Thirdly, the penetration of financial services in India is low and we can achieve significant growth by increasing this level of penetration."
She said the growth for the banking sector has moderated over the last two years, but a recovery in economic growth and in the investment cycle should support higher growth for the banking sector as well.
She added: "This should also help to address the asset quality challenges that have been seen in some parts of the banking sector.
"Other areas of financial services, like insurance and asset management, have been coming through a period of regulatory changes and should see higher growth momentum as they complete the process of adapting to the new environment."
About ICICI Group, Kochhar said: "We have presence across all segments of financial services; we have a strong market position in each business, and we have the capital and the distribution network to capitalise on growth opportunities.
"Over the last three to four years, we have focused on sustainability of our business with a balance between growth, risk management and profitability. We will continue to follow this balanced approach of sustainable profitable growth."
Kochhar further said there is a great deal of opportunity for banks arising out of just the Indian economy and its global linkages. "Indeed there is a need for us to grow in India, to serve the vast Indian market better and to play our role in the overall growth of the Indian economy."
She said banks in India need to grow in terms of not just size and scale but also in terms of capability - the capability to cater to a diverse customer segment from the farmer in a village to the urban high networth individual, and from the SME to the Indian multinational.
Kochhar added: "As India grows, the growth of Indian banks and their move up the league table of global banks will be a natural corollary.
"In addition to India's domestic growth, the growing international linkages will also provide a business opportunity in terms of facilitating investments into India by global players and also partnering Indian companies in their overseas expansion."
She said the economy is set to witness positive momentum and the recent policy actions by the government, such as the steps with respect to fiscal consolidation and the passage of key legislations, have demonstrated its commitment to creating an enabling environment for growth.
She also observed that India's growth is driven by strong domestic factors, as a result of which it is much better placed than other countries.
"We need to focus on reviving the investment cycle, for which we need effective decision making to ensure that projects move on the ground," Kochhar said.