How are you reading the change in policy stance by the central bank?
I think the most important point, as I see in the monetary policy, is that we are moving to a neutral position. I think that is even more important and reflective than the fact that there has been no decrease in repo rates. A neutral position in my mind has important characteristics, one is the rate itself which can, from here on, go up or down and the second is liquidity. If the total liquidity in the system is about Rs 6.5 lakh crore, some of that will go out by increase in currency in circulation. Now, we have roughly Rs 10 lakh crore; if currency in circulation goes up to Rs 12-13 lakh crore, that reduces surplus liquidity. But what does neutral stance mean for liquidity? Does it mean surplus liquidity of not more than Rs 1,00,000 crore, or Rs 50,000 crore, and what is the implication of that? I think there has been a lot of focus on neutral position from the point of view of ability to move interest rates in either direction, but the thing that we would really watch out for is also what neutral position means from the point of view of system-level liquidity. Because it has equal, if not more, implications on where interest rates in the money markets stabilise. And some of that is having an impact on the yields as well.
What is the impact on growth?
You have to look at growth in a slightly different context. The key issue on growth in my mind is about private investment and that is where our challenge is. As long as interest rates are in reasonable control, private investment in my view will start picking up once you see better capacity utilisation. And, my personal view is that by the end of the calendar year, we should see early revival of private investment, provided interest rates are under reasonable control.
From an equity investor point of view, how should they view India?
India is relatively, from an equity investor point of view, in a sweet spot. Our macro is in good shape, we are less dependent on the world other than IT and pharma. We are much more a domestic economy and investors like that. I believe formal domestic savings plus global savings should be in India’s favour.
With Trump taking charge, do you believe that the established world economic order is changing?
If you see post-World War II, the first mega trend you saw for a period of 35-40 years was the Socialist-Communist model and that model peaked in the 60s. In the early 70s, the world started seeing early trouble with this mega trend. And by the end of 70s, countries began to move away from that model. The second mega trend started in 1985, where marketbased economy, economic liberalism and globalisation became the mega trend — from mid-80s to 2015. People, who saw the second mega trend, know that the Communist-Socialist order doesn’t work in the real world, because as you focus disproportionately on distribution of cake, you’re destroying the growth of the cake. The question now is if 2016 is a turning point for the next mega trend?
What is the next mega trend?
The mega trend is back to protectionism and anti-globalisation. Therefore, whether it’s Brexit, whether it’s Trump or what you see in Europe is that the beginning of a mega trend, which is the mega trend 3. The biggest discussion at Davos (World Economic Forum) was about this mega trend 3. At this stage, the world view is that this is noise and not the mega trend 3. People are saying this is 3-4 years of noise, but ultimately, people will realise that the mega trend 1actually did not lead to prosperity. Now, this is hope. You know when a trend starts gaining momentum, it’s not controllable.
How do you think India should handle US President Donald Trump?
I am sure that India has got a strategy for it … But I have heard that companies like (Chinese ecommerce giant) Alibaba went and met Trump with some of its advisers who had deep relations in the US and who they had hired well before. I believe (Alibaba’s chairman) Jack Ma met Trump on January 9th … India is doing governmentto-government dialogue. India really needs to get the right set of private sector — may be non-resident Indians who may already have linkages and have supported him. That could be a good route.
You spoke about investments returning by the end of the year, but the RBI and even the Economic Survey talked about the twin balance sheet problem (stress on both banks and companies). So, how does it change by the end of the year?
One of the biggest challenges in India continues to be how you manage the issue of stress on bank balance sheet which has been there for a long time. We have talked about it year after year and it has not improved. My view is that as regards to stress, whatever has got into the ditch is remaining in the ditch. It is further complicated by some of the situations which is slowing down decision-making at PSU banks. If decisions don’t get taken and there is always a lot of fear … and if something is in the ditch, how do you get it out?
There have been reports about a possible merger with Axis Bank. Is it on the cards?
First, let me say that as a policy we do not comment on rumours and speculation. The core of any company is to focus on value creation and the ability to say ‘yes’ when there is a value-creating opportunity and ‘no’ when there is not a value-creating opportunity. Our approach to looking at anything is does it make sense for our shareholders, does it add value, is it sustainable and can we deliver superior returns to our stakeholders. That is how we think about any opportunity and obviously it goes without saying that if there is something which makes sense for us we will always keep an open mind and if there is something we need to disclose to the market we will be out there disclosing it at the right time. We are evaluating a variety of options as a bank. At this stage, there is nothing which we have come to a point where we think we should be coming out and telling you, ‘listen here is something really great’. We are looking at various options across financial services and we are looking at various options for creation of value for our stakeholders in whatever shape or form it comes.
How are you viewing the financial services sector in India?
I am very optimistic about financial services in India. I believe there is significant growth. The financial services industry in India is a huge beneficiary of the formal financial sector growth at the cost of real estate and gold. I am optimistic about financial services across the board — banking, asset management, life insurance, securities and investment banking. This is driven for two reasons. First, movement of household savings now into financial savings and second, deepening of Indian markets. For a mutual fund industry, which is growing at 30%, it is a phenomenal growth.
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