 "'Economy can get bigger kick from govt spends'")
What is your outlook on the economy?
On the real economy, we can see positive signs. For instance, Coal India's production has gone up. Overall mining activity is up. That creates movement of heavy commercial vehicles and so on. National Highways Authority of India (NHAI) is awarding contracts, and SME (small and medium enterprise) contractors are starting to get business.
In the financial economy, demand for car loans and commercial vehicle loans remains strong with 16-17 per cent growth. Demand is coming from SMEs.
What we are waiting for is a revival in big investments. While the private sector is completing ongoing projects, the bigger investment push will come from government spends. Things have picked up on the highways' side, the next area will be Railways, and after that, we should see activity from the defence. The bigger kick for the economy would come from government spends and, broadly, I think we are moving in the right direction.
Some of the largest business houses are laden with debt. There is also a commodity down cycle. How much of this worries you?
Puri: The groups in trouble are not the biggest groups in India. Maybe, one or two are big groups, but no one had heard much about them 10 years ago. And they are definitely not the biggest groups in the time I have spent in the Indian banking system.
But they have become big for the banking system...
Puri: Yes, for people who dealt with them...
Jhaveri: There shouldn't be sweeping generalisations. Yes, there are definitely some pockets of high stress and banks will have a challenging time, but I think making a sweeping generalisation across corporate India is unfair, because that is not the case. In the last five or six years in India, the corporate side of our business has grown and we have lent more to our clients. Today, our non-performing asset (NPA) level on the corporate side is very low and we are in a position to grow.
I think the only solution for those pockets of trouble are very hard decisions, a lot of pain and time.
Gill: One of the things that one often says is that look at the level of ambition in China and look at the lack of ambition in India. A lot of these groups that invested in 2007-09 and beyond were thinking that India will continue to grow at nine per cent. And India didn't grow at half of that rate. This led to a lot of overcapacity. Many of these guys created assets. So it is not that the money disappeared.
I don't think that everybody should be painted with the same brush. By and large, the big groups are in a reasonable state. In the medium-term, though corporate India is not investing, a lot of cleaning up is happening. It will come with some degree of pain, but this will put the Indian economy on a much firmer footing.
But current problems exist...
Puri: There are pockets that are going through a lot of difficulty. Some of those difficulties are not of their own making. They were told there would be raw materials and so on, which did not materialise. While some can be turned around, others will have to take a very bitter medicine. Is the system capable of giving that medicine is the question? Given what the RBI governor and Ministry of Finance have been saying, I do believe so.
Tiwari: PSU banks have much higher NPAs. But did we think four years back that the economy will start doing badly? No. Do we believe that banking is the reflection of economy? Yes. While NPAs have not stopped, the propensity of creating new NPAs has gone down.
Foreign banks are withdrawing from specific segments from the Indian market. Your views?
Gill: The costs of being global have gone up a lot. So if you look at individual jurisdictions and geographies, the cost of compliance and capital rent are going up. I think this has to come down. What we need to assess is the overall commitment in terms of balance sheet and capital, and whether foreign banks are reducing that in India. The answer is that the commitment of foreign banks remains undiminished.
Are you a technology company that happens to be a bank?
Kochhar: We are a company that provides banking service through technology. In today's day and age, banking gets provided through technology and you cannot separate the two. That's the way consumers want it and that's how it will be. There is so much of usage of technology even internally such as operations, data analysis, understanding the credit needs of customers and customer interaction. Technology has become a part of everything we do and we are on top of that.
Puri: Too much is being said about this. Banking is not changing. It is the business model and delivery mechanism that will change. You have to adjust to the advantages that technology offers to change your business model and the way you analyse big data and the information around your customers to provide far more focused products. So you look at all these disruptors, they are talking about making payments easier or making e-commerce purchase easier. So we split this into two; how can the network change your fundamental business model? And when we changed our model, we do a loan in 10 seconds for our customers and I don't think there are any disruptors who will match that. Technology only changes the way you manufacture, produce and deliver.
Are there segments of business that might be seriously challenged, like credit cards, since mobile phones are getting more popular now?
Puri: Mobile wallets will only be for a certain set of customers, but cards and payment mechanism will only increase, that is why we are moving towards further dominance in the credit card business and intend to take our share to 40 per cent. Mobile is only an enabler. The wallet is also loaded on to a mobile. We must distinguish between technology as an enabler and technology as a business.
Kochhar: Even if you take the mobile wallets, banks launched them even before the other forms of mobile wallets. Banks have an advantage, for example, our 'Pockets' customers can load money to the wallet and use it; even those who are not customers can use the wallet. So the same service can be given to newer customers and to our own customers who want to use your product. Similarly, if everybody has to make payments through mobiles, why would they use other forms of payments? The point is, somebody who is very comfortable using the mobile can still use the mobile app of the bank.
Will technology have an impact on employee strength?
Tiwari: Transition issues are everywhere. In the last five years, we have seen the onset of technology in the banking space, but the number of branches has doubled. So there will be hybridisation of clicks and bricks.
Foreign banks introduced new technologies in the system. But is the initial mover advantage getting eroded?
Jhaveri: The banking industry has been acutely competitive. But that doesn't change the basics of banking. If you look at the basics, what you really need is a focus on customers you will serve, your value proposition, ability to deliver it in a manner that they want, creation of economic value for them and finally, is a good experience that is simple, safe and secure.
Yes, customers may choose to do business with other banks, but that does not take away our value proposition. Technology is embedded in the way we've been doing banking for 25 years in India. There are just different types of technology that we are referring to. It is only going to increase the size of the pie and make the customer's life better.
Private sector banks account for 30 per cent of the system while public banks account for 70 per cent. By 2025, how do you see those ratios changing?
Kochhar: Private sector banks have consistently been gaining market share and the trend will continue. A large part depends on individual banks' capabilities to grow, how far ahead you are in the usage of technology, competitiveness, capital adequacy, having a vast range of products which consumers use, ability to think through what are the growth areas and ability to participate in growth. In India, the banking industry should grow at least 2.5 times the GDP growth rate. For our bank, we would grow at least three-four per cent faster than the banking sector.
In recent years, private sector banks were more careful while PSU banks were quite aggressive. Many in the latter category are unable to lend further due to capital adequacy norms. Do you see this accelerating growth of private banks?
Puri: The banking industry has tremendous opportunity; it is an under-served economy by organised finance compared to the rest of the world. So demand is not an issue. In that scenario, everybody will grow. But everyone has different business models, different target customers, different growth rates, profitability, etc. We are very clear that we don't push the envelope. We have targeted a five-seven per cent higher growth rate than the market over 20 years and that's not changed.
People underestimate public sector banks, I think they'll come out fine. Will we grow five-seven per cent faster than the market? Yes. Will the public sector banks disappear? No.
Tiwari: Talking about growth, capital will not be a constraint. If we talk about our balance sheets and impaired assets, about 58 per cent is due to stalled projects. Growth can't come unless the core sector is fixed, where cash-flow is the issue.
Puri: There could be some consolidation as well.
Is Jan Dhan an opportunity?
Tiwari: Due to Jan Dhan, there is one realisation that the poor are also bankable. Everybody would benefit.
Puri: Let's not look at Jan Dhan in isolation. If you look at Jan Dhan, with Aadhaar and Mudra, there is enough money at the bottom of the pyramid. We already deal with 4.2 million families below the poverty line and we are going to take it to 10 million. We could take it to 20 million with proper identification and there is consistency in subsidy payments. This would allow me to change my credit perspective.
On the real economy, we can see positive signs. For instance, Coal India's production has gone up. Overall mining activity is up. That creates movement of heavy commercial vehicles and so on. National Highways Authority of India (NHAI) is awarding contracts, and SME (small and medium enterprise) contractors are starting to get business.
In the financial economy, demand for car loans and commercial vehicle loans remains strong with 16-17 per cent growth. Demand is coming from SMEs.
What we are waiting for is a revival in big investments. While the private sector is completing ongoing projects, the bigger investment push will come from government spends. Things have picked up on the highways' side, the next area will be Railways, and after that, we should see activity from the defence. The bigger kick for the economy would come from government spends and, broadly, I think we are moving in the right direction.
Some of the largest business houses are laden with debt. There is also a commodity down cycle. How much of this worries you?
Puri: The groups in trouble are not the biggest groups in India. Maybe, one or two are big groups, but no one had heard much about them 10 years ago. And they are definitely not the biggest groups in the time I have spent in the Indian banking system.
But they have become big for the banking system...
Puri: Yes, for people who dealt with them...
Jhaveri: There shouldn't be sweeping generalisations. Yes, there are definitely some pockets of high stress and banks will have a challenging time, but I think making a sweeping generalisation across corporate India is unfair, because that is not the case. In the last five or six years in India, the corporate side of our business has grown and we have lent more to our clients. Today, our non-performing asset (NPA) level on the corporate side is very low and we are in a position to grow.
I think the only solution for those pockets of trouble are very hard decisions, a lot of pain and time.
Gill: One of the things that one often says is that look at the level of ambition in China and look at the lack of ambition in India. A lot of these groups that invested in 2007-09 and beyond were thinking that India will continue to grow at nine per cent. And India didn't grow at half of that rate. This led to a lot of overcapacity. Many of these guys created assets. So it is not that the money disappeared.
I don't think that everybody should be painted with the same brush. By and large, the big groups are in a reasonable state. In the medium-term, though corporate India is not investing, a lot of cleaning up is happening. It will come with some degree of pain, but this will put the Indian economy on a much firmer footing.
But current problems exist...
Puri: There are pockets that are going through a lot of difficulty. Some of those difficulties are not of their own making. They were told there would be raw materials and so on, which did not materialise. While some can be turned around, others will have to take a very bitter medicine. Is the system capable of giving that medicine is the question? Given what the RBI governor and Ministry of Finance have been saying, I do believe so.
Tiwari: PSU banks have much higher NPAs. But did we think four years back that the economy will start doing badly? No. Do we believe that banking is the reflection of economy? Yes. While NPAs have not stopped, the propensity of creating new NPAs has gone down.
Foreign banks are withdrawing from specific segments from the Indian market. Your views?
Gill: The costs of being global have gone up a lot. So if you look at individual jurisdictions and geographies, the cost of compliance and capital rent are going up. I think this has to come down. What we need to assess is the overall commitment in terms of balance sheet and capital, and whether foreign banks are reducing that in India. The answer is that the commitment of foreign banks remains undiminished.
Are you a technology company that happens to be a bank?
Kochhar: We are a company that provides banking service through technology. In today's day and age, banking gets provided through technology and you cannot separate the two. That's the way consumers want it and that's how it will be. There is so much of usage of technology even internally such as operations, data analysis, understanding the credit needs of customers and customer interaction. Technology has become a part of everything we do and we are on top of that.
Puri: Too much is being said about this. Banking is not changing. It is the business model and delivery mechanism that will change. You have to adjust to the advantages that technology offers to change your business model and the way you analyse big data and the information around your customers to provide far more focused products. So you look at all these disruptors, they are talking about making payments easier or making e-commerce purchase easier. So we split this into two; how can the network change your fundamental business model? And when we changed our model, we do a loan in 10 seconds for our customers and I don't think there are any disruptors who will match that. Technology only changes the way you manufacture, produce and deliver.
Are there segments of business that might be seriously challenged, like credit cards, since mobile phones are getting more popular now?
Puri: Mobile wallets will only be for a certain set of customers, but cards and payment mechanism will only increase, that is why we are moving towards further dominance in the credit card business and intend to take our share to 40 per cent. Mobile is only an enabler. The wallet is also loaded on to a mobile. We must distinguish between technology as an enabler and technology as a business.
Kochhar: Even if you take the mobile wallets, banks launched them even before the other forms of mobile wallets. Banks have an advantage, for example, our 'Pockets' customers can load money to the wallet and use it; even those who are not customers can use the wallet. So the same service can be given to newer customers and to our own customers who want to use your product. Similarly, if everybody has to make payments through mobiles, why would they use other forms of payments? The point is, somebody who is very comfortable using the mobile can still use the mobile app of the bank.
Will technology have an impact on employee strength?
Tiwari: Transition issues are everywhere. In the last five years, we have seen the onset of technology in the banking space, but the number of branches has doubled. So there will be hybridisation of clicks and bricks.
Foreign banks introduced new technologies in the system. But is the initial mover advantage getting eroded?
Jhaveri: The banking industry has been acutely competitive. But that doesn't change the basics of banking. If you look at the basics, what you really need is a focus on customers you will serve, your value proposition, ability to deliver it in a manner that they want, creation of economic value for them and finally, is a good experience that is simple, safe and secure.
Yes, customers may choose to do business with other banks, but that does not take away our value proposition. Technology is embedded in the way we've been doing banking for 25 years in India. There are just different types of technology that we are referring to. It is only going to increase the size of the pie and make the customer's life better.
Private sector banks account for 30 per cent of the system while public banks account for 70 per cent. By 2025, how do you see those ratios changing?
Kochhar: Private sector banks have consistently been gaining market share and the trend will continue. A large part depends on individual banks' capabilities to grow, how far ahead you are in the usage of technology, competitiveness, capital adequacy, having a vast range of products which consumers use, ability to think through what are the growth areas and ability to participate in growth. In India, the banking industry should grow at least 2.5 times the GDP growth rate. For our bank, we would grow at least three-four per cent faster than the banking sector.
In recent years, private sector banks were more careful while PSU banks were quite aggressive. Many in the latter category are unable to lend further due to capital adequacy norms. Do you see this accelerating growth of private banks?
Puri: The banking industry has tremendous opportunity; it is an under-served economy by organised finance compared to the rest of the world. So demand is not an issue. In that scenario, everybody will grow. But everyone has different business models, different target customers, different growth rates, profitability, etc. We are very clear that we don't push the envelope. We have targeted a five-seven per cent higher growth rate than the market over 20 years and that's not changed.
People underestimate public sector banks, I think they'll come out fine. Will we grow five-seven per cent faster than the market? Yes. Will the public sector banks disappear? No.
Tiwari: Talking about growth, capital will not be a constraint. If we talk about our balance sheets and impaired assets, about 58 per cent is due to stalled projects. Growth can't come unless the core sector is fixed, where cash-flow is the issue.
Puri: There could be some consolidation as well.
Is Jan Dhan an opportunity?
Tiwari: Due to Jan Dhan, there is one realisation that the poor are also bankable. Everybody would benefit.
Puri: Let's not look at Jan Dhan in isolation. If you look at Jan Dhan, with Aadhaar and Mudra, there is enough money at the bottom of the pyramid. We already deal with 4.2 million families below the poverty line and we are going to take it to 10 million. We could take it to 20 million with proper identification and there is consistency in subsidy payments. This would allow me to change my credit perspective.