Are the global and domestic macros in favor of the development of the financial system?
If you look globally, most of the world is battling with high inflation and recession. If you look at the fall in global commodity prices, it can be said that inflation is at its peak. So, inflation may come down but it is not going back to the 2% level that we have seen in the US. As interest rates rise in the US, we will have to see how much this hurts the world’s largest economy, and therefore, the implications for global growth. To that extent, while domestic remains strong, there is a much stronger correlation with overall GDP growth versus global growth. Ultimately, if the US is not going to grow, it is inevitable that exports will not grow and that is a concern. In terms of what’s happening globally, India Looks like an oasis of peace. We will grow 7% this year and over 6% next year. In India, while inflation is peaking, we have growth that is fair, we are quite comfortable as we look into the future. In this context, retail growth, MSME growth remains strong and corporate demand is back.
What gives you confidence about the customer profile?
One of the big things that has happened over the years is the quality of Corporate India’s balance sheet. Debt to equity is 0.6x, which we haven’t seen for 10-15 years. Given that corporate India has removed the lever and become more efficient, its ability to withstand global shocks has improved significantly. And looking at the group of customers we’ve selected, 88% of our incremental lending is now to A-minus and better (rated companies); I believe his ability to withstand pressure is very strong. Also, many of these players are domestic, which is a good thing. India is also a beneficiary of the China-plus-one strategy. I know that many global players across industries are in strong talks about moving some part of their supply chain away from China to India. Each of these will provide us opportunities to build new businesses.
Are there talks on capex?
We are certainly in talks with Corporate India on capacity utilization, especially in the specialty chemicals, cement, renewable sectors. Will it all be financed by banks? Probably not, as Corporate India’s operating cash flow has improved, they are happy to use internal accruals to create new capacities as well. As interest rates continue to rise both locally and globally, corporates will assess what will best benefit them and given the fact that a lot of arbitrage is falling, demand for bank loans will increase.
Does the issue of wrong pricing of loans still persist?
If we want to optimize our NIM (Net Interest Margin) so that we can get better ROE (Return on Equity), we need to pick and choose where we grow. In the large corporate sector, we feel we are not getting have paid For the risk we are taking. If it all comes down to pricing, we’ll be happy to wait as we have other engines to develop. Growing the balance sheet is not a problem, but growing profitably has become more and more important for us.
Are you getting more conservative in taking out corporate loans?
All I am saying is that we need to pay for the risks we are taking in the corporate world. The credit risk environment is reasonably benign, but having said that, if the 10-year G-sec (government security) is at 7.30% today, I expect to pay more than 8%. Otherwise, I would prefer to buy G-Sec which is risk free.