JP Morgan plans to have a multi-branch strategy in India and is holding talks with the regulator for more branches. Kalpana Morparia, chief executive officer of the lender’s India operations, in an interview with Manojit Saha, says economic growth might have bottomed out and the investment cycle would pick up. Edited excerpts:
There is a feeling the worst is over for the Indian economy, as well as markets. Do you agree?
There is a general sense growth has bottomed out. The numbers we have seen in the last few quarters appear to have been the lowest point of growth. The latest inflation numbers are relatively sober. All the irritants after last year’s Budget such as GAAR (General Anti-Avoidance Rules) or lack of certainty on the reform process aren’t there now. Not only were reforms announced; in some cases, these were followed by action.
As we see clarity on some critical issues like environmental clearances and land acquisition for industrial purposes, we would see investment confidence return, and this would be the biggest driver of growth. The fact that a Cabinet committee has been set up to look at the issues stalling projects would 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 sentiment, we have certainly seen very strong inflows after September.
What else needs to be done?
Removing policy bottlenecks to boost the investment cycle and facilitating a softer interest regime are two important steps that would revive investment. We will see a lower interest rate regime, which would be a combination of a cut in the cash reserve ratio and in the key policy rate.
Do you expect the Reserve Bank of India (RBI) to cut rates in the January 29 policy review?
We are hoping for a reduction. However, we don’t believe it would be as high as 50 basis points. It could be a 25-basis point cut.
The sentiment on the equity markets turned bullish in the recent past. Do you think this would continue?
Last year, we saw $24 billion of equity flows into the country. Even in the first 15 days of this year, we have seen strong foreign institutional inflows. I see a fairly active calendar this year on primary equity issuances. In addition to the government’s disinvestment programme, companies would also raise a fair amount of capital for growth, as the investment cycle kicks in. Banks would also raise capital for meeting Basel-III norms. The Securities and Exchange Board of India rules, which state promoters have to reduce their holdings to 75 per cent this year through institutional placements or offers for sale, would also boost activity in the equity markets.
Investment banking fees have declined in the last few years. In such a scenario, how would you 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 as competitive as India, both in terms of the percentage of fees and the competition from domestic and foreign players.
Investment banks that have a holistic set of clients, as well as products and services that address the client wallet on a comprehensive basis, are in a better position compared to those with only a few products to market.
Our coverage of clients is holistic. We offer not only investment banking products like debt and equity, but also trade, working capital and treasury solutions.
We also have a very active team that pursues investment banking opportunities across mid-sized and large companies. For example, in the financial institutions space, we were involved with two recent deals — L&T Finance buying Fidelity’s mutual fund business and Invesco acquiring 49 per cent stake in Religare AMC. We were also involved in Vedanta’s restructuring process. We are involved in very large companies and growth companies, as we term these.
Any plan to enter retail banking?
We are planning a multi-branch strategy; right now, it would be from a single branch. We would also do what is necessary, in terms of RBI’s expectation we would 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. As and when RBI allows, we may have a few more branches. But to become a full consumer bank, one needs about 1,000 branches.
