 "Jaideep Khanna")
The investment banking business in India has remained under pressure for the past two year on account of a slow economic growth. Jaideep Khanna, the country head and chief executive officer of Barclays India, says 2015 will see a pick-up in activity but cautions against any dramatic improvement, in an interview to Nupur Anand. Excerpts:
Barclays had changed its strategy and had quit retail business in India. How has the transition been after that?
The strategy that we had established in 2011 of quitting retail and focusing on some key business is the strategy that we are going to be focusing on in the foreseeable future. It has been very effective for us and looking at the macro economic conditions in India and overall in the world we believe it is the right strategy. We have decided to focus on our investment & corporate banking business, wealth management business, equities and we believe that all these segments will continue to grow. The legacy issues are behind us, we have been posting good numbers so we are confident that things will improve from here on.
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Recently we saw Standard Chartered wind down their equities business. Do you expect other banks also to take up similar steps?
What StanChart did is a manifestation of a global theme. It is that organizations are consolidating around home market and areas of businesses that they are traditionally strong in. And the flexibility and the appetite to venture into new areas and the stomach to build businesses into new areas in the face of losses is not there. So everybody is constraint and other institutions may also do the same thing.
Mergers and acquisitions have seems picking up since the second half of the last year. Do you expect further momentum?
The overall activity in the year 2012-14 has been at a very low level. I expect the current year to be better as there is a greater degree of confidence from international investors who are looking at India and with the valuations remaining at where it was there will be opportunities for people to pick up assets at an attractive valuation. At a country level also we have seen increased activity and I believe this will continue as more and more companies look at trying to resolve their credit issues. But a significant pick up in M& A activity will happen only when there is a broad consensus that the worst is behind us and there is a tangible evidence for it. The M&A activity will be more inbound than outbound.
The last two years have not augured well for investment banking. How do you expect 2015 to be different?
I expect this year to be better than the last as there seems to be an increased level of activity in the equity market, around refinancing etc. But I don’t expect 2015 to be a stellar year. I don’t think there will be a dramatic improvement because things are just beginning to improve and it is still a long journey to go.
RBI has recently reduced the repo rate on 15 February. What is the quantum of rate cut that you expect in 2015?
We believe that the recent earlier-than-expected rate cut clearly shows that the RBI’s bias has shifted sharply towards easing, and further confirmation of the disinflationary trend in coming months will open up room for more policy rate cuts. As such, we now expect a further 50 basis point of rate cuts from here. We expect the two rate cuts to be delivered in April and June policy meetings.
Do you expect corporate credit to pick up with the reduction in interest rate cycle beginning?
I don’t there will be any direct revival on account of a rate cut. Corporates’ are not going to make an investment decision only because rates have been reduced. It signals RBI governor’s confidence in inflation. It also reflects the increased ability in the economy to pick up so it improves the mood and makes India look more attractive from a global capital perspective. So it will improve the overall mood but central bank cutting rates does not make setting up of a plant easier. It is the changes in the overall business growth that will lead to an improvement in credit off take and not just a reduction in rate cut.
