Deepak Parekh: ‘Economic challenges are cyclical, not deep-rooted malaise’

“Is there an acknowledgment that the Indian economy has hit a soft patch? Are efforts being made to rectify the same? Can we do better? The answer is clearly “yes” for all these three questions,” he said.

Deepak Parekh, HDFC, HDFC bank, Deepak Parekh on indian economy

Deepak Parekh, chairman of HDFC

HDFC Chairman Deepak Parekh has said the economy is facing short-term challenges, particularly on consumption growth, but these appear to be “cyclical and not a deep-rooted malaise”. “The financial sector is the backbone of any economy. That a lot of the system still needs fixing is well-known,” Parekh said at a function.

“Is there an acknowledgment that the Indian economy has hit a soft patch? Are efforts being made to rectify the same? Can we do better? The answer is clearly “yes” for all these three questions,” he said.

According to Parekh, the crux of the problem with the financial sector is that the flow of credit to the commercial sector is still clogged. In the first six months of the current financial year, the total flow of resources to the commercial sector from banks and non-bank sources was only Rs 0.9 trillion, compared to Rs 7.4 trillion in the previous year — that’s a drop of 88 per cent.

“This clearly reflects the risk averseness in the system. Since the time the Asset Quality Review began in 2015, banks have scaled back lending. Till last year, the commercial sector relied heavily on non-bank funding sources as a substitute,” he said, while giving the keynote address at a function to launch the Centre for Financial Studies at the SP Jain Institute of Management. He added that the Indian economy needs both, banks and non-banking sources to meet its funding needs.