Interview. Demand is strong, but inflation still a worry: Shanti Ekambaram of Kotak Mahindra Bank

Due to Covid there was a demand shrinkage for travel, hospitality and discretionary spends; there was a rush to saving money. Companies deleveraged and cut back; SMEs just survived thanks to ECLGS. The economy was in a roll back situation.

After Delta wave, things started coming back and by July-August 2021, there was a different feel. Vaccination happened, confidence was returning, business was beginning to bounce back and by October, it gathered steam. The last busy season was also reasonably good compared to the previous one, but not as good as 2019.

The combination of low rates and good deals resulted in the housing boom. Consumption typically in the months of April and May is subdued, but this time in April and May, we saw strong consumption across categories, products and services led by urban. In August, it continued to be strong. The credit growth at 15.5 per cent is probably one of the highest in the industry that we’ve seen for a very long time. 

People are gearing up for better than 2019, but it remains to be seen whether it pans out or not. We expect that certain segments such as travel, dining, luxury goods, weddings will exceed.

Confidence to take credit has come back and one is seeing more demand for personal and consumer loans, higher spends on credit cards, etc. This is backed by a stable job market.

Inflation is a worry point for India. 140 bps increase in interest rates, we are still seeing demand there. Food inflation, travel, clothes, anything you touch there is inflation, but people are coming out with more brands and products. That said, consumers can change their behaviour. So, consumer behavioural analysis and watching the data very closely is important. 

We are getting into the busy season and going by current trends consumption demand continues to be strong. It also depends on inflation and interest rate hikes and whether the terminal rate will be 6.25 or 6.50. The differential between US and India rates will reflect on the currency and RBI, which has so far ensured a stable rupee will have to ease.

We have seen currency depreciate post FED policy and this is likely to be inflationary. If interest rates in India rise sharper than what is expected, there could be some impact on demand. So far rating agencies have shaved off 15–30 bps from growth projections. But we’ll have to watch.

The government has also been managing the fiscal reasonably well so far. They are still holding about ₹2 lakh crore of surplus to spend. GST collections have been strong. Fiscal and monetary measures are moving in tandem, which is good. So, second half is also likely to see growth.

Any customer today will not put all eggs in one basket. There are different asset classes. People are diversifying their portfolio which is different from the past, which was largely in bank savings and deposits. Right now, the demand for money is higher than growth of assets.

So, banks have very quickly changed their strategies and moved up deposit rates. Also, the wholesale credit segment, which was borrowing from capital markets suddenly found demand for money moving to the banking system.

Banks and NBFCs have to make sure that the credit- deposit ratios are in control. But now, everybody’s focusing very sharply on deposits.  

If you saw in previous time, that CD ratio ranged from 65–70 per cent. Now it is 80-90, which is still okay. Banks will try and endeavour to keep it around 80-88 per cent or so. The ideal ratio is around 75-80 per cent, but in today’s times with demand for credit, you will trend a little higher. 

Credit card is the oldest BNPL (Buy now pay later). In a credit card, you could pay later, revolve or take an EMI. In BNPL, you take it now and pay in three days, 15 days or 20 days.

With credit cards, you must also look at ease of use. For example, when you’re buying a large value item of more than 50,000, you’re mostly always pay by card or EMI product.

You get 30 days free credit and then decide to pay or take an EMI. BNPL is for small ticket purchases and for shorter tenures.

You will still see it at the point of payment and consumption. All banks have a debit card EMI product. That is also BNPL.

So, buy now pay later has existed always through credit card or DC. Globally, BNPL companies have seen challenging times. India has seen growth in BNPL over the last year.

So, BNPL is a form factor, just like how card is a form factor. But credit cards as an underlying product is a payment product, which means ease of payment and credit.