Regulatory hurdles deter investors

Written by Ronojoy Banerjee | Ronojoy Banerjee | Updated: Dec 3 2011, 08:24am hrs
One of the biggest risks to Indias growth story is the combination of regulations and lack of transparency

for potential foreign investors, says Johnny Akerholm, president & CEO of the largest Scandinavian financial investment company Nordic Investment Bank, which has a capital base of over 61 billion euros. In an interview with FEs Ronojoy Banerjee his first to an Indian newspaper he talks about the eurozone crisis and its impact on emerging markets like India. NIB is an international financial institution owned by Nordic countries like Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway and Sweden. It lends to countries for several initiatives for development but it has a deep interest in promoting environment related projects.

How does NIB look at Indias growth story There are concerns that issues like inflation and policy paralysis (with several economic reforms pending) could make foreign investors wary of investing in India Do you agree

India is no doubt seen as a country providing a lot of opportunities for foreign investors. The major challenge in India for the time being is that the combination of regulations and freedom does not always provide for transparency to foreign potential investors. Also, this affects the allocation of resources which is in part the target and increases the risks of bottlenecks and the proneness towards inflation. Investors need predictability.

You recently traveled to India for a conference. At present how much money have you got invested in India Can NIB take its relationship with India forward and how

NIBs lending exposure to India totals 232.8 million euros. Yes, we see that we can on the one hand develop cooperation, like in the field of renewable energy and related areas, and on the other hand support long-term finance to India, something which will become increasingly scarce as a result of the crisis and regulatory changes.

NIB invests in various environment related projects. Do you feel that in the last few years some Asian economies like China and India are also willing to make investments in the field

There has clearly been a change in attitude. We had the impression a few years ago that these investments were seen as an extra burden, but now they are increasingly seen as an essential element needed in order to achieve sustainable growth.

We understand that about 20% of your funding goes to non-member countries. In the context of the eurozone crisis, do you see the percentage of funding to such non-member countries (mainly in Asia and Latin America) going up If yes, then by how much

The shares will develop on the basis of mandate fulfillment. We do not plan on a regional basis. The potential credit crunch in Europe will reduce investment activity, but it will not reduce the need for external funding.

Can you please share a rough estimate of the amount of exposure NIB has got to countries like Germany, Italy, France and Greece

NIB is not lending to any of these countries. NIB is not involved in this crisis. Our major areas of operation have so far been marginally affected. NIB continues to have a good access to financing and also stands ready to finance good customers in a crisis situation.

Does the bank feel that in the context of the eurozone crisis its non-performing assets (or non-recoverable loans) might increase

We have not yet noticed any of this, but it is clear that if the crisis becomes very deep, NIB cannot be totally unaffected. We are vigilant, but we do not at the moment foresee any major changes.

As an economist what is your reading of the current European crisis And what are the immediate steps that the eurozone countries must take to resolve the crisis

This is a complicated story to tell in a few words. But I would point to two things. The crisis will not be solved before all the sovereigns have again access to normal market financing. In order to achieve this, they will have to provide credible medium-term programmes for the balancing of the budgets and to introduce structural programmes in order to enhance growth. It is not enough to focus on short-term financing as is now the case. The second point is that the division of responsibility between the European Union as a whole and the individual countries will have to be clarified. One cannot expect mutual responsibility unless policy-coordination is increased significantly from the present. This has not been clarified to the voters and a much deeper political debate is needed.

We have seen that despite the eurozone crisis Nordic country banks (in Finland, Sweden and Norway) have not been affected much. What are the reasons for this

These countries have learned from their own financial crisis, two decades ago, that the best protection is to keep ones own house in order.

So, these countries entered the present global crisis in a strong position, and Norway is, of course, also

benefitting from its strong position in the energy field. But they are all small open economies and cannot isolate themselves from the rest of the world, and will also in the end be affected, not least through less export possibilities.