‘Pvt In­vest­ment Cy­cle to Change in 9-12 months’

The Economic Times - - Money -

The cre­ation of non-per­form­ing loans has peaked but there is some more bad loans to be recog­nised, said KVS Ma­nian, president, in­sti­tu­tional and in­vest­ment bank­ing at Ko­tak Mahin­dra Bank. In an in­ter­view to Anandi Chan­drasekhar and Sanam Mir­chan­dani on the side­lines of Ko­tak in­vest­ment con­fer­ence, Ma­nian said he ex­pects Ko­tak’s cor­po­rate loan book to grow at 20-25%. Edited ex­cerpts:


Has the NPA cy­cle peaked? Have we seen the worst yet? The NPA cre­ation cy­cle has peaked but there is some more recog­ni­tion to be done. The cre­ation of new NPAs is not hap­pen­ing. It may not be getting sig­nif­i­cantly bet­ter yet be­cause there’s not enough credit growth. In per­cent­age terms, NPAs are still grow­ing for the sec­tor and they will grow a bit more from here.

Some feel the sum of ₹ 10,000 crore for re­cap­i­tal­i­sa­tion of banks an­nounced in the bud­get was lower than ex­pected. What is your take? I be­lieve this is low. PSU banks need higher al­lo­ca­tion of cap­i­tal to re­solve is­sues. The fi­nance min­is­ter may be look­ing at this as a process and may al­lo­cate more when re­quired. More im­por­tantly, the cap­i­tal re­quire­ments get crys­tallised only when fi­nal write-offs and fi­nal res­o­lu­tions hap­pen. If that hap­pens faster, there will be more clar­ity on what the ac­tual num­ber is go­ing to be.

What are the chal­lenges on the cor­po­rate loan book side? The key is­sue is the ca­pac­ity util­i­sa­tion and un­less it gets be­yond the 80-85% mark, peo­ple don’t in­vest. Pri­vate in­vest­ment has not yet got into the pos­i­tive cy­cle. The govern­ment is mak­ing in­vest­ments for the pub­lic sec­tor, es­pe­cially in cer­tain ar­eas like roads and power etc. But that is not suf­fi­cient to cre­ate a whole­some re­cov­ery cy­cle. When do you see pri­vate in­vest­ments pick­ing up? I am op­ti­mistic that the pri­vate in­vest­ment cy­cle will change over the next nine to 12 months and we will see new money come in. Un­less that hap­pens, credit growth can­not hap­pen. There are spe­cific sec­tors where one is see­ing green shoots such as like roads, EPC and re­new­able en­ergy. There are pock­ets but it is not broad based enough.

What kind of cor­po­rate loan book growth is Ko­tak Mahin­dra Bank aim­ing for? For a bank of our size, ir­re­spec­tive of what the credit growth in the in­dus­try is, our aim is to grow cor­po­rate book by 20-25% go­ing ahead.

Are you sur­prised by RBI chang­ing pol­icy stance to neu­tral from ac­com­moda­tive? The mar­ket was sur­prised not as much by no rate cut but by the fact that the stance changed to neu­tral. The RBI gover­nor ex­plained that the core in­fla­tion is still stub­born. I think sig­nif­i­cant trans­mis­sion has al­ready hap­pened. Our rates from the peak have fallen 125 ba­sis points. As far as we are con­cerned, we have passed sig­nif­i­cant amount of drop of repo rate, re­sult­ing in drop in the cost of funds to cus­tomers. MCLR has helped us deal with cor­po­rate Bad bank as a con­cept is use­ful and valu­able but how it is de­signed and im­ple­mented is as im­por­tant as the con­cept it­self. One of the is­sues around bad bank is that when you trans­fer as­sets to a bad bank you have to fig­ure out how to value and price them. These are im­por­tant is­sues and these re­quire good ex­e­cu­tion in terms of trans­parency of how it is priced. Till those fall in place, to take a view on that, whether it is good or bad, is pre­ma­ture. One of the prob­lems in bad bank or even the way it has to be han­dled go­ing for­ward is mak­ing quick res­o­lu­tions, quick calls. With 75% of the in­dus­try be­ing PSUs, there is an is­sue there. In a pri­vate bank, it is prob­a­bly eas­ier to make a call.

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