JP Morgan is planning for a multi-branch strategy in India and will offer few retail products, and says it is in discussion with the regulator for more branches. Kalpana Morparia, cheif executive officer of the lender's India operation says economic growth may have bottomed out and the investment cycle will pick up in an interview to Manojit Saha. Edited Interview:
There is a feeling that the worst is over for the Indian economy and markets. Do you agree?
There is a general sense that lack of growth has bottomed out. The numbers we have seen in the last few quarters appear to have been the lowest point on growth. The latest inflation numbers are relatively sober.
All of the irritants that were there last year post the budget like GAAR or lack of certainty on the reform process, are not there. Not only were reform announcements made but in some cases those announcements were followed up by action.
As we see clarity regarding some of the critical issues like environmental clearances, land acquisition for industrial purposes, we will see investment confidence returning which will be the biggest driver for growth.
The very fact that a cabinet committee has been set up which will look at issues that are stalling projects, will augur well for growth. The consumption cycle is strong. As the investment cycle picks up we will see significant re-rating on the growth front.
If stock markets are barometers of sentiments, certainly we have seen very strong inflows post September.
What more needs to be done?
Removing policy bottlenecks to unleash the investment cycle and facilitate a softer interest regime are two important things which will revive investment. We will certainly see a lower interest rate regime which will be a combination of cut in cash reserve ratio as well as cut in the key policy rate.
Do you expect RBI to cut rates in the January 29 policy review?
We are hoping for a reduction but we don’t believe it will be as high as 50 bps. It could be 25 bps.
The sentiments have turned bullish on the equity markets in recent past. Do you think this will continue?
In the last calendar year, we have seen $ 24 billion of equity flows in the country. Even in the first fifteen days of the current year we have seen strong foreign institutional flows coming in.
I see a fairly active calendar this year of primary issuance of equity. In addition, to the government’s disinvestment programme, companies will also raise a fair amount of capital for growth as the investment cycle kicks in. Banks will also raise capital for meeting Basel-III norms.
Moreover, SEBI rules which say that promoters need to bring down their holding to 75% in the current calendar year, either by institutional placement programme or offer for sale, will also add to the activity in the equity markets.
The investment banking fees have come down in the last few years. In such a scenario how will you plan to protect your margins?
India is one of the most competitive markets. We operate in the Asia Pacific region across 15 markets. I have not seen any market that is as competitive as India, both in terms of percentage of fees and competition that you face from domestic and foreign players.
Investment banks which are having a more holistic set of clients and have products and services which address the client wallet on a comprehensive basis are in a better position rather than those that only have few products to market to clients. The firms that offer the full range of services to their clients are relatively in an advantageous position.
We do a very holistic coverage of clients. We offer not only investment banking products like debt and equity, we also do trade, working capital, treasury solutions.
We also have a very active team that pursues investment banking opportunity across mid-sized and large corporate. For example, in the financial institutions space, we were involved with both the recent deals L&T Finance buying Fidelity’s mutual fund business and Invesco picking up 49% stake in Reigare AMC. At the same time we were also involved with Vedanta’s restructuring process. So, we are involved in very large companies and also, what we call, the growth companies.
Is there any plan to enter the retail banking space?
We are planning to operate a multi-branch strategy, from a single branch right now. We will also do what is necessary in terms of Reserve Bank of India’s expectation for us to operate in the retail segment for a multi branch requirement. So, we have approached RBI for additional branches.
However, we cannot become a full-fledged consumer bank. Today we have one branch, and as and when RBI allows, we may have few more branches, but to become a full consumer bank, one needs, say thousand branches.
