A day after HDFC Chairman Deepak Parekh talked about impatience among businessmen as nothing had changed on the ground in the first nine months of the Bharatiya Janata Party government, HDFC Bank’s Managing Director Aditya Puri tells Manojit Saha and Nupur Anand the government is on track to improve ease of doing business and investment on the ground would probably take another 18 months or so. Edited excerpts:
Is there a sense of disappointment over the government’s performance in terms of ease of doing business or revival of investments?
We have to look where we were, where we are and where we want to be. There was a time when inflation was high, we had a current account problem, fiscal deficit was an issue, and there were questions over political stability. The rating agencies were talking about reviewing the country’s rating. See what has changed after the Lok Sabha elections. Inflation is under control, we don’t have a current account deficit or fiscal deficit issue. We have a stable government which is clear about what its intends to do on land acquisition, environment, insurance, labour reforms, Goods & Services Tax, agricultural pricing policies, etc. The government also wants to create employment through the Rs Make in India’ initiative and is working on all of these. On manufacturing, processes are being simplified. The target is to substantially improve the ease of doing business. We know that nobody can find fault with the prime minister’s execution skills, whether it is Jan Dhan Yojana or anything else.
But investments have not picked up yet…
Investments will follow a sequence and will take time. For this year, we are projecting a gross domestic product growth of 5.2-5.5 per cent. That growth was based on clearing stuck projects and faster decision making. As more and more efforts come, we can grow at 6 per cent next year. The delta of the investment will take it to 7 per cent. But private investment will probably follow public sector investment. Investment on ground takes time, may be another 18 months or so, from December.
No one is disputing the intention, but the criticism is that nothing has changed on ground.
I disagree with that school of thought.
HDFC Bank has a comfortable capital adequacy ratio of 15.7 per cent. Why did you raise another Rs 10,000 crore earlier this month via share sale even though economic growth is not there?
We are very confident that the economy will pick up, that is why we have raised the capital. Consequently our growth rate will also increase. Also there are the Basel-III norms which require capital buffers etc. We opened our share issue at a time when India was going to sleep — around 9 pm. And we closed it before India woke up. We got an overwhelming response. That is a vindication of the policies of the government and the consequent expectations of overseas investors on how the economy will perform and how we will perform.
HDFC Bank’s strength cannot be independent if the country is not doing well. You will not get the price that we got. We sold in overseas market at a premium. And we did not give discount in local markets. In all honesty, I would say that we are very thankful to the finance ministry, the Foreign Investment Promotion Board (FIPB) and the RBI in the expeditious manner in which they have approved our application so that we could meet the US regulator’s deadline.
But wasn’t there a delay in granting approvals?
There was no delay at all. If we hadn’t gone in the first week of February, then I would not have been able to raise (capital) till the first week of July. So the delay cannot be attributed to anybody.
Infrastructure is in a mess, and the public-private partnership model is broken. There is a school of thought that the government has no option but to increase its share of infrastructure financing.
First, a lot of public sector entities are sitting on cash, which they should either return or put in projects. Second, coal is an unexpected bonanza; spectrum will also bring money; so will disinvestment. The finance minister has said he will stick to his fiscal conservativeness. Along with all these, there will be some reallocation of subsidy. If the government takes the lead, private sector investment will follow and probably it will follow fast. Also let us understand why the PPP model did not work. Finally it has to provide a return to the party. Such models will work only if properly executed. I do believe the government is working on a number of schemes, which may be announced in the Budget or later.
Do you think it’s time for the central bank to cut interest rates sharply?
Absolutely. The governor has already said that inflation and macroeconomic fundamentals are moving in the same direction. With inflation under control now and if fiscal deficit is kept under check, then there is no reason why rate will not be cut. The RBI governor is not saying that he does not want to cut rates; he is looking at the sustainability of low inflation. If inflation has come down to 5 per cent, and taking into account a spread of 2 per cent, why should the rate of interest not come down to 7 per cent?
Why is base rate not coming down even after RBI’s rate cut?
Spreads (actual interest rate over the base rate) have already come down. As the deposit rates are getting reduced, base rate will also come down, may be in the next quarter.
Deposit rates are still at 8.5-8.75 per cent even though inflation has come down to 5 per cent.
Demand for credit was not there. But deposit rates will certainly further come down in the next three to four months.
The RBI has now allowed chief executives of private sector banks to continue till the age of 70. Your present term will end in October this year as you will reach 65. Will you continue?
The question is am I young, willing and able? So, as long as the board thinks I am fit and the shareholders think I am fit, I would say yes. I think the board will review it in its meeting in March and recommend for approval. My wife and daughter definitely do not want me at home.
What’s the status on the HDFC-HDFC Bank merger?
We just did a share issue. If there was anything on the table, then it was incumbent on us to mention it. HDFC had made a statement that in the long run we believe that it is beneficial for both the corporations. In the meantime, we need some concessions in the balance sheet of HDFC to make sure that it is beneficial for both shareholders. These are small things that are under discussion. As and when we get a favourable response we will examine it. At the moment there is nothing on the table.
What are the other concession you are looking for?
We have asked regulatory clarity around CRR, SLR, priority sector lending, tax etc. Some parts have been covered and some parts need little more clarity. We are in discussions with the regulator.
Several banks have expressed interest in payments banks. Would you also be looking at a joint venture?
I am already a big payments bank. So at this point of time we don’t see a merit in a tie- up. We can also buy later or apply later but I will always have the inherent advantage.
The government has recently decided to infuse capital in public sector banks which are more efficient? Do you think this is a signal that only performers should survive? Does this open up an opportunity for private banks to acquire weaker public sector banks?
What the government is saying is that if you do not create viability in your business, I cannot carry on infusing capital. So they are saying either you increase your efficiency or you either merge or you cut down your balance sheet. I do see the possibility of merger among public sector banks, but not a private sector bank acquiring a public sector bank.
What are the growth plans in the coming years?
If you see 60 per cent of India lives in rural and semi-urban area where the penetration of organized finance is only 8 per cent and the reason is that because it is difficult to come up with a profitable model here. We have been working out with our pilots in the last 3-4 years and only last year we have managed to smoothen out everything whereby this is a major area for us.
The other part is that 65 per cent of Indian’s population is below 40 years of age and everyone has got a mobile phone. So digital is the big thing. We plan to be the global leaders on digital banking platform in the coming years. Last two years we have invested in a data warehouse, customer relationship management, leads management, outbound call centre and we have made investment to make the systems to be device agnostic. So we saw the advent of big data and data analytics to come out for tailor made products. We are also using social media to add to the customer’s demographic and financial profile to add to the psychographic and lifestyle profile..
The physical commerce is also moving to e-commerce and we are market leaders in payment gateways. 45 per cent of transactions happens on our debit card and credit card in the e-commerce space. We are also the market leaders in vendor financing and issuance of new credit card . We also launched bank mutthi main which allows you to do all transactions that you do on the phone.
By the end of the month we will be launching all the loan applications on the phone and we can process it in 30 minutes.
Before March end we will launch the mobile wallet. We are also launching something that will allow you to make the order before visiting a restaurant and also process the payment. We are also launching another service which will be an extension of chillar service to the merchants. If you order food home then you can pay the delivery person if he is part of your contact list via phone.
We are also looking at contact less card by end March so if next when you go to a merchant then your phone can act as a card and payment can be done via it. So this we see as a major growth area.
Credit cards have grown by 31 pert cent and personal loans by 23 per cent. Don’t you think that the unsecured portfolio is growing at a much faster rate in a slowing economy?
Economy is slowing but we have an underpenetrated economy. Banks haven’t gone to semi-urban and rural area. My growth I a combination of growth in economy and market share. But I am not diluting my credit standards. My credit costs have gone down, NPAs are stable or going down.
In the last one year, the share of retail has gone down from 54 percent to 51 percent at the end of December quarter. Is that a conscious move?
Normally, the retail and wholesale mix should be 50:50. When the economy slows down then the share of retail grows. We don’t target that but it is a function of economy.
Your casa ratio in total deposits has come down from 43.7 per cent in December 2013 to 40.9 per cent at the end of December 2014. What is the reason for it?
In a falling interest rate scenario people tend to put money in fixed deposit instead of savings account. And current account is a function of growth in the economy so as the stock market picks up, commodity market pick up it will pick up again.