V Srinivasan, Deputy Managing Director, Axis Bank, says it is important for the government to send out a clear message that it will stick to the fiscal path already laid down. He cautions that markets (bond and stock) are not likely to take to another relaxation that kindly. He also calls for a clear policy from the Centre on recapitalisation of banks and advocates that it be restricted to a carefully chosen few so that it has higher impact. Srinivasan was also confident that Axis Bank could continue to maintain its growth rates even in the face of existing and emerging competition from payments and small banks. The bigger challenge will be to grow deposits at the rate required, he said, in the course of an interview with BusinessLine at his office in Mumbai. Edited excerpts:
What are your expectations from the Budget?
The key expectation is that the government should not veer away from the fiscal consolidation path. There are enough assets and enough holdings that can always be monetised. Your need to spend will always be higher than the means at hand.
Moving away changes a lot of dynamics — including commitment to FRBM (Fiscal Responsibility and Budget Management) — because you have already asked and got some fiscal space last year. Look at the 10-year bond rates. They are at near 8 per cent today — nobody would have dreamt of that after the 125 basis point (bps) cut in policy rate by the RBI.
A lot of the upside on interest rates came from foreign investors buying government securities. We do not want them to go away. From a stability perspective — both from the point of currency and interest rates — the government should stick to the roadmap. Otherwise, markets will go haywire. You can, of course, argue that it will be temporary — but on top of all the pain that we have already endured, investors may face a breaking point and just move away.
How do you trigger the investment cycle?
Corporates are unlikely to invest now irrespective of what you do right now. Risk appetite is quite low. Six months to one year down the line, when people are convinced of where the economy is headed, they may put fresh money on the table. Today, they won’t.
So, it is difficult to trigger a private investment cycle through incentives. We still have low levels of capacity utilisation. It is useful to give retail individuals some incentives — housing, for example. That will trigger real estate and all related industries like cement, steel, etc. That is a better way to trigger demand.
The other key point is that they need to be clear about the message for the banking sector itself. They have to be clear about whether they need so many banks — they have a limited amount of money — so will they put it in a select group or will they spread it across all banks? You can give it to a few and make them fit and ready for what is going to come.
Does the government have a choice about providing capital to everyone, considering they own these banks?
Look at what they have done for some banks. They have been told not to lend. So, they become a deposit-taking entity. As long as you don’t lend, you don’t need capital. If the public continues to give deposits, you can always give it to the bigger banks or put it in G-Secs. The government does not have capital to put money in every bank. Do you give it to a few and make them fit or do you give it to everyone without having any effect? To me, that is the choice. I am not saying shut down the banks.
Do you back consolidation of public sector banks?
Most of them do not have scale. And their scale and size are not uniform. A lot of them are stuck in a range and are not able to get out of it. So, it is useful at some point in time to figure out how they can be stronger. What is the option? You can allocate capital to those whom you think are the long-term winners so that they are in a better position.
What impact do you see on banks like yours from the new payments/small banks?
Look at the rationale for these banks. Financial inclusion agenda has been the key idea behind these new licences. But these new banks also have constraints on the product side. Small banks, for example, have a constraint on ticket size. So, the way we look at it is that you need to have the right size, structure, infrastructure and tools.
When more people come into the banking system they are not going to only place deposits and forget about them. They would want other services. And there, these guys (payments and small banks) can work with universal banks like ours, or we, after a period of seasoning, can offer them some products and make them our customers. If the banking wallet itself expands, it is good for universal banks.
These 20 guys coming in is good for us, because they provide the raw material for the future. We can probably acquire customers at a faster pace.
I would think it is an opportunity. There will be some disruption of people, because they will need people for their operations and where will they get them? They will pick them from various banks, including ours. That will be a bit of pain, but otherwise overall business prospects are positive in the medium term.
Can you sustain your growth rates of 20 per cent plus at your current size?
You have to look at this from two dimensions. If you look at the assets side, growing faster is possible. If you look at retail, we were growing at around 40 per cent a few years ago, now we are growing at 25 per cent. And we believe we can continue to grow at this rate for the next few years.
Corporate loans, of course, are growing slowly now but when the cycle comes back, 20 per cent growth when the overall system is growing at 10-15 per cent is possible. So, from the assets side perspective, because of our ability to sense the clients’ needs, whether retail or corporate, and respond efficiently, we can pace ourselves.
The strain is going to be more on the liability side. The deposits side is not growing at the same rate. Customers tend to stick with their banks. In the retail mind, I don’t think there is any perception of risk whether it is bank A or bank B — at least not enough for them to change behaviour. We have seen that irrespective of what happens to some public sector banks, the deposits keep coming.
The liability side doesn’t move quickly whereas the assets side does — because they want the person who gives them the best rate and who can give it fast. Public sector banks still have a huge advantage with respect to government business.
There are pools of money available to them. The short point is that we cannot have the assets side growing at one rate and the liabilities side growing at another. So, we have to calibrate the growth on the assets side. That is what we are doing. Of course, we are also able to raise long-dated bonds to supplement deposits whenever possible — and this is useful.