‘We have tried to reduce our dependence on project advisory, structured finance’

Varsha Purandare, MD & CEO of SBI Capital Markets, has been a career SBI officer. Her three-decade stint with the bank has exposed her to all facets and wings of the bank — retail, treasury and corporate credit. Each stint, she says, has helped her acquire a certain attribute which comes useful in her current role. For instance, her stint as a treasury dealer, both in India and overseas, has given her the capacity to think on her feet and to adapt to changing conditions quickly as the market changes direction. “We cannot be rigid in our theories if the market doesn’t agree with our hypothesis. You’ll have to cut your losses quickly,” she said. Her stint in credit (her previous posting was as Chief Credit and Risk Officer of SBI) has given her a rounded view of the Indian corporate sector and also a keen understanding of the challenges faced by a public sector banker in providing credit and then handling the fallout if the loans don’t come back in time. At present, her focus has been on developing new lines of business at SBI Caps to help de-risk its income stream from reliance on the project advisory and structured finance segments. Excerpts from an interview:

Will there be an improvement in corporate and bank results this quarter?

The results in the banking sector may still not recover to the expected extent because provisions may not go down much. It will not dip because there may actually be some growth or be at the same rate because of the ageing of these debts.

Provisions tend to go up as debt remains on the books for longer periods. Also, due to the demonetisation effect, some of the small and medium enterprises (SMEs) may have some impairment because of the liquidity strain. We will have to watch out for this.

It will be visible only in this quarter. I am confident that it will not be a serious constraint. But provisions for NPAs (non-performing assets) may not come down drastically.

What’s your view on the business outlook for this year (2016-17)?

The growth in capital goods sector has been affected because of overcapacity and fall in demand, and the global slowdown. We have not seen major investments happening this fiscal. The earlier capacities have not been fully utilised as of today; so, credit growth to the capital goods sector has been affected. It may start increasing from the first or second quarter of next year.

Which sectors are witnessing credit grown?

The hybrid annuity model in road projects has started picking up as has solar power where a lot of new projects are coming up. Consumer industries to a small extent, though there has not been additional manufacturing lines. Auto-ancillary has started picking up as well. Oil and exploration has been good. Telecom, after the advent of Jio, has become competitive and will see consolidation. Mining did well this fiscal compared to last year.

Will this translate into a good fiscal for SBI Caps?

This fiscal may not be that good. Last year we did decently well. We achieved our targets. There are two things that determine how we do. One is M&A activity, which saw a big push this fiscal. And this doesn’t happen just in one or two months. The work starts a year or 18 months before. We have seen growth in this activity.

M&A activity grew six-fold this fiscal. We did the RCom-Aircel, Reliance Infra-Adani Transmission and Reliance Cement-Birla deals. In the project advisory and structured financing segment, which contributes 80 per cent of our income, we are getting a lot of mandates in the stressed assets, S4A and SDR segments.

As far as capital market activity is concerned (rights issue/IPO/OFS as well as debt capital market), there has been substantial growth.

We have tried to reduce our dependence on project advisory/structured finance by focussing more on M&A, and capital markets. In raising funds through debt capital markets,we are ranked third. We are trying to de-risk our revenue growth.

What’s your outlook for the next fiscal?

The next fiscal should be better. Some of our initiatives will come to fruition next year.

Capital markets, as of today, are seeing a lot of issues coming up. The pipeline looks healthy. But remember also that if I file a DRH (Draft Red Herring) prospectus today, I have one year to raise money.

When the money will be raised depends on the right price and how the market conditions are.

Many companies in the mid-corporate category came to raise money this fiscal. That pipeline is good.

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