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thank you for joining us for support lay
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here let me begin by asking you about
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the impact of the global recession on
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Indian banking what is it done to spread
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and the cost of funds for Indian banks I
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presume you're talking about
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fundraising by the Indian banks overseas
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yes see most Indian banks don't raise
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funds for themselves they are funded by
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deposits and the only time that they are
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giving an overseas loan as if they have
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overseas funding available to them
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during that period I think for a
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temporary period the spreads had widened
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a lot likely for Indian corporates and
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also for Indian banks but I think
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they've come back to normal and are now
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very competitive and how has it impacted
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demand for credit within India demand
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for credit in India what happened was
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that with the global slowdown naturally
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there was an impact on India as well
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with our GDP growing from about 9 to 6
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or % so for a temporary period which is
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about 6 months or last year I think that
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demand did go down we were growing at
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about between 24 and 27 percent in terms
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of credit demand and that came down to
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sub 20 I think in the last quarter it
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has recovered and we are expecting to
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see 20-plus growth in the coming year
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and what is the medium-term outlook and
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if you could also talk about those
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industrial sectors that are showing the
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most demand for credit see medium-term
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the prospects for India bright I think
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depending upon what happens to global
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recovery and whatever and what we do
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about our infrastructure and subsidies
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and agriculture their varying estimates
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on GDP but if you look at it I think GDP
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growth or somewhere near seven and a
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half percent is definitely a given even
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if we don't fix our problems but if we
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get our infrastructure right and we get
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our agriculture policy right and we get
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our GST right we get our fiscal deficit
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which I do believe that there is a very
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good chance that we get it right
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then a double-digit growth after two
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years is quite possible so current
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estimates neither the most optimistic
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nor the most pessimistic are about seven
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plus in fiscal tenth but eight eight and
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a half ten eleven and they're hoping for
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double-digit growth on the assumption
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that they would have been able to sort
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out inflation and they would have been
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able to make progress and sorting out
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infrastructure subsidies and the deficit
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the budget has taken some good steps so
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there's a reasonable chance we'll have
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double-digit growth within two years as
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far as the sectors that are concerned
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naturally one of the big boost in
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spending is infrastructure a lot of
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spending in agriculture they're spending
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on health food and education you once
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you have this you have the add on demand
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from cement for cement steel the
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consumer or the FMCG are doing well most
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of the transportation industry is cars
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have had a record year I think I was
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talking to unmanned drew and this has
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been a record year for mandra's in their
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entire history so that's been doing well
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I was talking to Manuel of Hero Honda
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they've been doing phenomenally well the
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FMCG people are doing well so it's
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reasonably broad-based I'm sure there
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are many things to learn from the US
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financial market overall the regulations
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that have come in place after the crisis
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is there anything that the Indian
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banking sector could learn from that
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especially when it comes to things like
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over leveraged consumers I think there
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are a lot of things to learn and in
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terms are not making the same mistakes
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but what what we have to realize is that
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what happened in the u.s. is probably a
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multiple of things it's not just the
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over-leveraged consumer it's the US
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government spending way beyond its mean
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because
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the dollar was a reserve currency it's
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the exotic derivative it brought
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leverage into the market as well as a
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lack of understanding of who was
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responsible for what and what the actual
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value of the assets were so there were a
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whole lot of things that came through
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also does this notion that you could
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have the markets will determine
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everything in a fair manner and we'll
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distribute risk and we'll price it right
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that proved wrong and when
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intermediation and regulation became a
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domain of the open market it was a
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free-for-all so when you look at it and
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you look at what caused the crisis it
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was a lot of financial intermediation
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moving outside the regulatory ambit
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number of players not clearly defining
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their roles high leverage into something
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that banking is not that complicated
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I mean it's financial intermediation
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people where money want to give it to
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people who don't have the money but
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naturally the people who give the money
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require liquidity and security and so
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that requires management of credit
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market and maturity risk and the people
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who were supposed to manage it but the
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opaqueness and what came into
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derivatives and who was selling what and
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who was responsible
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just resulted in something that in
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Cheree was supposed to distribute risk
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and give investors the appropriate tenor
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and return that they wanted didn't work
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even the mathematical models didn't work
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because human beings in a crisis react
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with a hurt behavior and other things
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equal don't work basis risk was all
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wrong and so we did have a big big
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problem and you allowed borrowing on the
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basis of asset values going up it's not
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only created an asset bubble but over
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leverage for the consumer fortunately in
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India there is a bank though it's
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fashionable now to say that it was by
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luck and by default that they didn't
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open up now that's not correct well what
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they didn't open up to was
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what they didn't understand and what we
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also have banking practitioners did not
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understand and now it turns out the
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people who profess to understand it also
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did not understand it so I think the
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regulator's played a major part I think
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part of the regulation that people are
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talking about now the previous governor
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dr. Reddy when you talk about macro
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prudential guidelines that just system
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aggression and he had taken into account
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by adjusting risk weight by adjusting
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the provisioning requirements that you
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did not build up bubbles so when we look
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at the Indian financial system we are
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clearly looking at the fact that you
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shouldn't have too much leverage you
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need to have clear definition of
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regulatory roles all financial
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intermediaries must come in and we you
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must have macro Prudential Regulation
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that goes beyond only monetary policy
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India has not had a financial market
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crisis in a long long time probably not
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at all in in in modern times there must
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be something that Indian banking is
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doing right besides the strong
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regulatory checks and balances yeah III
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think the banking system itself has been
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conservative has been reasonably
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responsible while not going overboard
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they have met the credit needs so I
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think crisis normally come as a
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snowballing effect of excess leverage
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and borrowings during good time when you
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presume that nothing will go wrong but
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the world knows that what goes up must
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come down
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and so I think the bankers have been
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conservative too
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which is a good thing let's switch lens
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to your own management style 2007 you
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will convert the asian bankers
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leadership excellence award could you
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share one big leadership challenge that
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you faced in your career and how you
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overcame it
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that's tough actually you know when you
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look at leadership now it's it's change
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very substantially so leadership now is
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more first among
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fools and so the way you define it it's
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not so much a one-man show it's a
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question of setting you probably provide
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the vision you jointly set the strategy
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and you monitor the execution so I'd be
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taking too much upon myself if I said
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that my leadership did it I think it was
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I joined team with me being the first
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among equals you have a lot of
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challenges naturally in a day-to-day
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environment but I wouldn't be able to
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describe just one as a challenge we went
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through multiple when we started you
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didn't have it connectivity but we
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wanted an online real time bank when we
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started we wanted to go into consumer
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banking but traditional consumer banking
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didn't exist in terms I said you don't
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have a credit bureau you don't have
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history you don't have probability of
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default and in retrospect probably it
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was good because we didn't depend to
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money too much only on figures and
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exercise judgment as well you've been a
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big advocate of rural banking and also
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introducing new technology in banking
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services I want you to talk about the
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opportunity that exists in rural India
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and yet it is not an easy market to
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penetrate simply because of the lack of
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infrastructure there for adequate
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infrastructure and you also have the
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state sector that is very dominant there
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how do young relatively young younger
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private banks like yours
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use technology to innovate and build
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market share rapidly see technology is
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very important where you don't have
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infrastructure because it provides your
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distribution reach and that gives you
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the ability and frankly even if you take
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the state sector if we have to put up a
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bricks and mortar on network across the
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length and breadth of the country it's
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not going to be economically viable so
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we need to look at different ways of
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being able to delay not only is it not
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economically viable for
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it is not beneficial because at the last
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mile problem even to the rural consumer
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because if he has to travel to
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bricks-and-mortar
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it's going to be too expensive for him
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in addition you will never be able to
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build up credit history which will allow
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him to be able to become a credit worthy
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customer and create viability for
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himself financially so what we have been
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looking at is the fact that somewhere
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between 300 and 450 million people still
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living in the rural areas prosperity is
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coming slowly but steadily but we need
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to be able to substitute the moneylender
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we need to be able to provide him then
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finance which he is able to repay just
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providing finance that we can't repay
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there is not fair so we looking at
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microfinance which creates financial
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viability by providing him production
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marketing and raw material support
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coupled with finance ie creating a
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viable business we looking at providing
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finance to the individuals where they've
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been going to the money lender against
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either appropriate collateral because we
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do want to be on I want them to be
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honest we want imprint calculate the
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habit of paying back so we're providing
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that as well we are taking jobs into the
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rural areas rather than having everybody
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come to Bombay we want to go out and
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provide jobs there we do believe that we
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will be able to create and in fact we're
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almost there a microfinance initiative
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is now making money we think we provide
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return on equity in 2 years we think
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with our project that we have to tie up
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and then know that we have tied up with
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the telecommunication companies we will
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be able to take banking on the mobile
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this will forget further security when
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you get the 3d coming in we will be able
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to take it right into the interior there
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is enough collateral in terms of gold
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and other such instruments available
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even for the lower middle class and
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that's coming through so even if say
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20-30 percent of these people come into
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what is defined as the bankable world
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today that doubles your market so it's a
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major opportunity
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we look at it two ways one it is out
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paying our dues to society - I think
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we're creating models that will enable
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us to compete very very effectively say
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in two three years from now if if I can
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create a profitable business and
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microfinance which we think we're almost
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there
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that is an average loan size of 15,000
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rupees with work $300 if I can create a
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viable business on a ticket size of $300
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with a cost - revenue of less than 40% I
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can take that model of the season
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actually change banking so these are the
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models that will ultimately come which
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will completely change how you deliver
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what price you deliver what is the size
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what segments you deliver at and that
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will give you the ability not only to
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have models in India but this and these
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are applicable in any country with a
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large landmass this market is very
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complex and you've set out very
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beautifully how you want to what you
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want to achieve in those markets but
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increasing penetration in those markets
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is more easily said than done we know
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that all they don't forgiveness programs
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so far have really impacted only
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organized sector loans banking notes
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money lenders loans are not forgiven by
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government programs we've also seen that
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most of the farmer suicides at least
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whatever anecdotal information we have
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caused by loans the moneylenders not
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organized sector banks if you were to be
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an agent of change you know you have of
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course your shareholders and your and
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your profit maximization target but if
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you were to be an agent of social change
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like the state sector banks assume that
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role therefore you begin if you were to
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bring to bear your leadership qualities
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and if you look at it I think this
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business of long waver is overdone the
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long waiver was for the people right at
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the bottom of the pyramid and at the
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proportion waived whereas I'm not
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advocating that it's a good idea it was
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a bad idea in terms of creating a
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precedent but I think more is being made
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out of it then
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it is something really at the bottom of
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the pyramid and and the person did your
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lawns involved at some point zero zero
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one percent so I don't think we should
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get stuck in that because normally the
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what is picked up is well the way the
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newspapers reported and that's a bit
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sensational but on the ground it's not
00:16:09
that much of an issue definitely it is
00:16:12
our intention to be an agent of change
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we brought the microfinance rate down
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substantially compared to the
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microfinance institutions we are today
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the second largest lender in
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microfinance after the State Bank of
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India we've taken our products into the
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interior as a combination between the
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telephone between using distribution
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channels or dealing with the cooperative
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banks appointing our own agents so I I
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do believe that if managed properly
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which is a question of cost right I
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dealing fairly with the people we find
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that the people in the rural area is
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very happy to deal with a fair
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transparent and clean dealing reducing
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cost for using alternate delivery
00:16:52
channels ensuring you that you can also
00:16:55
reduce operating cross to having
00:16:57
appropriate technology and scale I think
00:17:00
we can make a very sizable contribution
00:17:03
we're looking to make 10 million
00:17:05
families financially viable at the
00:17:07
bottom of the pyramid in the next five
00:17:10
years that's 40 million people we are
00:17:12
also and that does not include the
00:17:14
regular lending that we would do to the
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top 20 percent of those 500 million
00:17:19
people who will become prosperous with
00:17:21
the trickle down effect we also see a
00:17:23
substantial change coming in through if
00:17:25
we were doing two kilometres or all when
00:17:27
we're doing 10 kilometres that makes a
00:17:29
major difference if you had 40 airports
00:17:31
and you have 90 airports that completely
00:17:33
changes the scale of the market
00:17:35
available so it's it's an absolutely
00:17:37
fantastic opportunity and financial
00:17:39
services in my view the best opportunity
00:17:42
and financial services globally we've
00:17:45
seen in recent years the rise of strife
00:17:49
within society the gap between haves and
00:17:52
have-nots the Maxell problem
00:17:55
insurgencies how what does all that mean
00:17:58
for the agenda for in
00:18:01
Thanks I think it's not so much the
00:18:04
agenda for Indian banks but it's
00:18:06
definitely one speaker this afternoon
00:18:08
talked about civil disobedience in 70
00:18:12
civilians in 25 years in India and very
00:18:14
ominous yes no I when I said it's not so
00:18:19
much case to banks banks is just one
00:18:21
component of society is it an issue for
00:18:24
society absolutely I think the fact that
00:18:26
you cannot have 30 or 40 percent of your
00:18:30
population below the poverty line is an
00:18:35
absolute given the fact that you can it
00:18:37
cannot have to India's and continue
00:18:39
without some kind of civil disobedience
00:18:40
at some point of time is also a given
00:18:43
the fact that you cannot get elected
00:18:45
today in large parts of the country
00:18:47
unless you benefit them is also a given
00:18:50
so I think politically socially
00:18:52
economically this is an imperative and
00:18:55
the self-interest or most people will
00:18:57
ensure that what has not happened will
00:19:00
happen so I do believe that politically
00:19:03
we will see better schemes we will have
00:19:06
a better direction or subsidy we will
00:19:08
have better schemes to make sure that
00:19:10
the underprivileged are taken along with
00:19:13
the people who are doing well we will
00:19:17
see that this will create a market of
00:19:20
its own we will see better distribution
00:19:23
so I think this will come because each
00:19:25
part of society recognizes that this is
00:19:28
not a tenable situation thank you so
00:19:31
much for joining us
