New Delhi, Mar 10 (KNN) Financial sector in India needs to ensure optimal capital allocation to the infrastructure sector is to creditworthy borrowers, said Chief Economic Adviser K V Subramanian.

Speaking on the distress in the infrastructure sector, Dr Subramanian said that since the early 1990s the key problem of the Indian banking sector has been the quality of lending, especially of large loans.  

“Banks need to ensure that capital allocation to the infrastructure sector is to creditworthy borrowers. Crony lending has been a problem in the banking system. The Economic Survey also highlighted that the banking sector’s problems originated from large loans that were not necessarily lent to the most creditworthy borrowers. This problem gets far more accentuated in the context of infrastructure. Financial institutions especially need to be working on this,” he said at an event organised by industry chamber FICCI.

Speaking of infrastructure sector, Dr Subramanian further emphasized, “Crony lending is the elephant in the room that we have to acknowledge. Financial sector in India has to take responsibility that it is the ultimate arbiter of capital and ensure optimal capital allocation.”

Subramanian also stressed that there is a significant need for India to focus on infrastructure spending.

Speaking during the event Dr MS Sahoo, Chairperson, Insolvency and Bankruptcy Board of India said that distilling the essence of IBC, and with support of IPs and CoCs, a greater number of EPC companies can accomplish successful resolution under IBC.

''The law is an enabler for a rescue mechanism in the market economy. Stakeholders must be sensitised that value maximisation is not regardless of concerns of others in the ecosystem. There should not be undue fixation on a formula-based computation of liquidation value,” he added.