India Inc and stock markets have cheered the Mondays’ Budget announcements. Jaspal Bindra, executive chairman, Centrum Group, told Sandeep Singh that the thrust on infrastructure, creation of Bad Bank are very positive and it will provide appetite for credit exposure to banks. Excerpts:
How do you see the Budget?
I feel the main thrust is on infrastructure. It is a very well thought out situation on the infra because not only have they identified major infra, which has got a huge employment potential and is the need of the hour, but they have also backed it up with the creation of a new Development Finance Institution, which will be able to fund these longer term seed funding. Also, the very fact that they are creating this new AIF, which will take some of the NPAs off the bank, it will give a lot more appetite for credit exposure in the banks. I think once you get all together then it is a potent combination.
How do you think the insurance FDI is going to benefit the sector and the economy?
It is going to be a game changer for insurance because in the foreign JVs all will now see foreign partners scaling up their stake to 74%. We were all very clear that these companies were not going to use their full resources, product range, their full tech platform available till they have majority stake. Now, with 74% ownership, they will have every motivation to bring in the full game. So, besides the initial thrust of some foreign capital, we are going to see a range of marketing products, whole range of resources thrown at the insurance industry. In the insurance sector in India, the premiums are still quite heavy for value customers, but, I think, this will bring in the right amount of competition and also full range of products.
How do you see this talk of bringing two PSBs and one general insurance company in the list of companies to be privatised. What message does it send?
Actually, it’s provided clarity, because on the one hand, the PSU banks were being consolidated into a few by merging three-four PSU banks together and on the other they have left out a few banks, which didn’t fall into any category of merger. So now there is clarity that those are not part of the government’s plan to continue ownership on. Basically, the government is willing to bet its capital only on those banks and the sub skill players they are happy to privatise.
It is a win-win situation because large financial services players will be very happy to get a license, and the government will be quite happy to pass on the need for further capital infusion away from itself to these large players.
Why do you think the stock markets reacted so positively and why are banking stocks rallying so strongly?
In my understanding, there are two solid positives for the banks. For PSU banks, the very fact that the NPA burden can be removed will significantly improve their credit appetite. I think now you can see them far more active and hopefully as their books will grow, their revenues will grow and hopefully this time there will be more accountability on them, and they will bring in better ROEs and returns.
However, for banking in general, I think infra is Godsend. It gives you good quality projects with good quality sponsors and hopefully foreign capital as seed equity etc. whether it’s roads, metro, airports, railways. So, I think the opportunity and enablers have been created for the banks. It’s a very large underbanked underserved market, so I’m not at all surprised that the banks have deservedly got the right push.
The G Sec yields are going up, will that make money more expensive for everybody and will it not impact banks?
On the expanded fiscal deficit, I would say while it will bring more money supply, there is a very serious possibility of surging inflation. So, from that point of view, I think that even if the interest rates don’t sort of scale up, they are not coming down anymore. How quickly they start going back up is what we have to watch as the smaller banks could have an adverse impact if interest rates go up. But they’ll make huge money on their portfolios. So it’s a combination of what they will not lose in treasury portfolio, and what they will win in the lending portfolio. So, in one way or the other, they will benefit.