Bangalore: Eminent banker Uday Kotak has said that Indian banks face some 'real' risks from their disproportionate exposure to a few large companies, particularly in sensitive sectors like infrastructure.
Therefore, concentration risk is real for Indian banks," Kotak said in his annual message to the shareholders of Kotak Mahindra Bank .
"Further, a well intended measure of smoothening cash flows through restructuring runs the risk of becoming a tool for 'ever greening'," he said.
The term 'ever greening' is used for a loan-restructuring exercise under which banks provide additional but indirect loans to troubled borrowers to help them meet their existing obligations.
While this helps the banks avoid the loans turning bad for some time, it increases their exposure to the distressed borrowers.
Kotak said that one the most important challenges in the Indian banking sector is its ability to define and price risk.
"The sector very often takes equity type risks for debt level returns," said the Executive Vice Chairman and Managing Director of Kotak Mahindra Bank.
About the "much debated governance deficit challenges", he said it is critical to get right balance between politics and economics, but with "a little wind from the policy front, India has the ability to bounce back in due course of time."