You have emerged as a top player in the debt syndication space...
I am very proud of how the team has taken us to the leadership position both on the offshore and local side. Especially in the equity capital markets. There are challenges and responsibilities of being on the top of the pyramid of both the debt and equity markets. On the positive side, since you have added value to clients the chances are that a lot of the repeat business would come to you. By default you become the port of call by clients.
In many ways if you are at the edge of the periphery you tend to be short of the best talent, but if you are sitting with market leader, you have the advantage of the best talent working for you.
The downside is that the fire in the belly or the passion to perform would somewhere start diminishing as people start taking the leadership for granted. The downside is that you are judged against a benchmark which is high-water mark.
How do you assess the foreign risk appetite for both Indian debt and equity
From a global debt capital point of view, there is a huge appetite for Indian paper. Till this point we have seen Indian banks seize this opportunity. DB has been the central bank in this space, leading 13 of the 15 bond issues done last year.
That appetite is very much intact. Hence, we see longer tenure bonds hitting the market. India is not a big supplier of dollar paper; hence, whatever the supply, it is lapped up. Corporate paper is even more attractive as the supply is scare. We just had Reliance and Indian Oil issues. The pipeline is strong and we will see high-yielding corporate paper in the five to 10 year tranche hit the market over 2011.
I believe that, as was demonstrated in the Coal India IPO, if there is going to be an IPO from a quality company with enough liquidity and free float there will be takers. So whether it is Coal India or another IPO from one of the divestment candidates, there will be appetite.
When it come to follow-on offerings, I think it gets more challenging. In that space we have not seen enough supply of paper for the past 60 days. It would get challenging for mid-cap India to issue paper as these papers are highly illiquid. I have to be far more optimistic on the debt capital market than equity capital.
Do you anticipate any fallout of the recent Japanese crisis
Dont know. Its amazing when you started in January 2011 and you asked global investors as to what were the biggest risk, they would put down euro zone. From a global standpoint, another would have been inflation risk for India.
In the next 60 days the headlines have been taken over by Libya, Egypt and Japan. Volatility is difficult to predict and its important that India contains inflation within RBIs targets.
Why is capital formation not picking up
Part of the reason for the delays are related to approval process for land acquisition, fuel supply linkages and environmental approvals. This is largely seen in infrastructure. If you look at the manufacturing sector, capex formation will pick up as consumption is picking up, capacity that was created in the mid-2000s is now being fully utilised. The confidence of corporate India that financing is available will also lead to a pick-up.
Whats your outlook on interest rates
The collective view apperas to be that we could see interest rates go up in the 50 to 100 bps point range and not in the 100 to 150 bps range. There could be spoilers if core inflation picks up or if oil spikes to unreasonable levels. I would say rates would rise south of 100 bps.
Its very clear that the sustainable level of growth for India is in the 8-9% range. We have to invest in reforms and infrastructure, only then can we grow in double digits.
How is the bank doing
The bank has grown at a compounded 25% per annum for the past five years and if India continues to grow at 8-9% we would continue to see a compounded growth of 25%.
Many of our clients are now looking for cheaper sources of debt capital for longer tenures. We will continue to be a bridge for companies seeking global pools of capital.
Our transaction banking business will also grow. I would be happy to get more branches, which would help us grow retail as well.
Your views on the RBI foreign bank subsidiarisation paper
The paper does need some recalibration from market participants. It has also to be based on reciprocity. There are some modifications which are required on whether it should be wholly owned with no optionality to dilute.
It is important that the dividend payout is not capped at 40%. You cannot be trapping profits so dividend repatriation should be allowed to the fullest.
Priority sector definition should be aligned to where the global banks have their strength. Its important that the branch licensing policy be fair and one of the propositions is that at least in the top 25 cities, there must be representation of the foreign banks that have subsidiarised. For subsidiarisation in itself the reciprocity criteria should be considered; everybody should not be judged by the same yardstick.
How much does India contribute to your global revenues
Asia Pacific India is amongst the largest markets for DB. Along with Japan, Australia and New Zealand, we sit in the middle and the contribution to Asia varies roughly between a third or a fourth, depending on the year. We have close to 8,000 people in the country, and India is amongst the three largest markets in Asia.