arthur yuen : promoting economic and social development in asia welcome remarks by mr arthur yuen, deputy chief executive of the hong kong monetary authority ( on behalf of mr norman chan, chief executive of the hong kong monetary authority ), at the seminar on " president jin liqun on the asian infrastructure investment bank ’ s operations and projects ", hong kong, 8 november 2016. * * * president jin, distinguished guests, ladies and gentlemen, good morning. it is my pleasure to welcome you to this seminar on the asian infrastructure investment bank ( aiib ) ’ s operations and projects, organised by the hkma infrastructure financing facilitation office ( iffo ). on behalf of the hkma, i ’ m honoured to welcome president jin to hong kong to meet with leaders from the financial and business sectors who have an interest in infrastructure project planning and management. i am delighted to see the strong level of interest and the diversity of business leaders represented in the field. aiib is an important establishment in promoting economic and social development in asia. boasting an initial capital of $ 100 billion and a founding membership of 57 countries, aiib came into operation in january 2016 with a mandate in the development of infrastructure and other productive sectors in asia, including energy and power, transportation and telecommunications, rural infrastructure and agriculture development, water supply and sanitation, environmental protection, urban development and logistics. as we are all aware, president jin has played an instrumental role in shaping up the formation and the guiding principles of aiib. with the huge financing gap for infrastructure development standing at $ 8 trillion in the decade to 2020, aiib will be looking to play a major role in bridging the shortfall. under the strong leadership of president jin, aiib would provide a global platform to coordinate efforts among existing international financial institutions and government authorities to bring development issues to light ; it also has the capability to mobilise the liquidity and field expertise from investors, financiers and project developers from the private sectors to facilitate infrastructure development and their related financing activities. to the hkma, president jin has been a long - time friend. just four months ago, we had the honour of president jin as the officiating guest at the launch of iffo and a key panel speaker at our inaugural conference. president jin acknowledged that iffo can be an important contributor to asian infrastructure by helping to guide liquidity from private and institutional investors into productive investments, while also serving as a platform for communication

public debate, not just in india but elsewhere in the world. public sector lending vs private sector lending let us start by looking at public sector bank credit growth compared with the growth in credit by the new private banks. as the trend in non - food credit growth shows ( chart 1 ), public sector bank non - food credit growth has been falling relative to credit growth from the new private sector banks ( axis, hdfc, icici, and indusind ) since early 2014. bis central bankers ’ speeches this is reflected not only in credit to industry ( chart 2 ), but also in micro and small enterprise credit ( chart 3 ). 1 in chart 2, the latest negative growth april number may be an aberration because of uday bonds being transferred from bank loan books to investments. bis central bankers ’ speeches the relative slowdown in credit growth, albeit not so dramatic, is also seen in agriculture ( chart 4 ), though public sector bank credit growth is picking up once again. whenever one sees a slowdown in lending, one could conclude there is no demand for credit – firms are not investing. but what we see here is a slowdown in lending by public sector banks vis a vis private sector banks. why is that? such a simple identification test suggests that the problem is not that aggregate demand for credit is low because interest rates are too high. that would have implied a slowdown in credit across the board. yet the real rates of credit growth from private sector banks to different sectors are extremely high, and private banks typically do not charge lower interest rates than public sector banks. this suggests strong demand for loans from them at prevailing interest rates. the obvious conclusion one should draw, therefore, is that the slowdown is because something is affecting credit supply from the public sector banks specifically. could it be the lack of public sector bank capital? if we look at personal loan growth ( chart 5 ), and specifically housing loans ( chart 6 ), public sector bank loan growth approaches private sector bank growth. bis central bankers ’ speeches the lack of capital therefore cannot be the primary culprit. rather than an across - the - board shrinkage of public sector lending, there seems to be a shrinkage in certain areas of past high credit exposure, specifically in loans to industry and to small enterprises. additionally, the fact that the credit slowdown dates from early 2014 suggests that the bank cleanup, which started in earnest in the second half of fiscal year 2015, was not the cause.