Aditya Puri would certainly be a happy man after the Reserve Bank of India raised the age limit for private bank chiefs to retire to 70. But more so, investors would be the happiest as there has been no denying that HDFC Bank could report 25 percent growth for the past 80 quarters, since its existence, largely due to its architect.
Discussing the RBI move, HDFC Bank Managing Director Aditya Puri said that probably the central bank has realised that even bankers can work till 70.
The RBI’s move is in line with the new Companies Act, which allows all directors and managing directors to serve up to 70 years.
On Foreign Investment Promotion Board’s (FIPB) insistence that HDFC’s stake in the bank is a foreign investment, Puri said he expects clarity on the matter in a month or so.
While the bank has grown at 25 percent for the past around 76 quarters, growth in the last four quarters has come down towards 20 percent. However, Puri is affirmative that he will get back to 25 percent and even 30 percent growth when the economy gets back to 6-7 percent growth, which he expects by FY16.
He said it is dangerous for the banks to grow fast when the economy is slowing as it can result in higher non-performing loans.
Below is the transcript of Aditya Puri’s interview with CNBC-TV18’s Latha Venkatesh
Q: The RBI has raised the upper age limit for retirement for the managing directors to 70 years. First up why did they do it? I have got three options, you tell me which. One, Raghuram Rajan knows that banking talent is scarce and whatever is there should be conserved; B, Mr Aditya Puri has clout and C, a bit of both?
A: You can eliminate B, they probably did it because they realised that if the rest of the world is not senile till 70 the bankers could probably keep their sense till then.
Q: That clearly gives you another six years. I will call it the last innings just because that makes it all the more important. You have done 20 percent growth for 80 quarters why will be different in the last innings?
A: This is actually a very exciting time for us. What has happened if you see when we have been talking over a period, in the last 3-4 years we have gone to semi urban and rural India. That is where 60 percent of India lives and that is where organised finance is actually not penetrated at all.
The second part is when you see what has happened to both the advertising world and to Big Data and technology, you have a situation where you have multiplicity of channels, you have multiplicity of distribution channels for companies, multiplicity of customer segments which makes traditional brand building very difficult. However what it also does if you analyse Big Data very well is, it gives you the ability to give the right product to the right person at the right time.
The third is what we are doing in terms of our CSR, where we have brought 3 million families from below the poverty line to above the line. Three million families, 5 to a family that is a lot of people. We intend to take this to 10 million. A combination of this is not only going to make money for the shareholders but it is personally gratifying to substitute the money lender, to go in and deal at the cutting edge of technology and to deal with the bottom of pyramid at the same time.
Q: Is Jan Dhan Yojna also applicable to private sector banks?
A: Yes absolutely.
Q: So, you mandatorily will have to open a set number of accounts...
A: We have villages allocated to us and in those villages we will be the ones opening the account and considering we have neither government ownership nor government business this is from the goodness of our heart.
Q: Is it goodness or will it be beneficial at all? This is a very genuine problem because very senior, responsible and equally committed bankers like you told us that RBI's previous thrust, they opened something like 10 million accounts of which probably 3 transactions got done in the whole year per account. The point is that no frills account or the basic accounts are not getting used. Will it be any different in the next 6 years?
A: If it is going to be different. It will be different in the next 6 months and if it is not then it is not going to be any different in the next 6 years. The point is very simple unless the government follows through and ensures that the direct benefit transfer and other subsidies is made into this account number one so that they have balances and we are also able to build credit history.
Two, the government is saving a lot of money and I think they should be gracious enough to pass some of that to the banks because we are commercial organisations. I think this time they are looking very carefully and they will ensure at least that’s what they have assured us that they will ensure direct benefit transfer. They will ensure that Aadhaar seeding is done as it is really lagging behind. So, Aadhaar seeding has to be done and then we have to match the records with the government and money has to be paid there then you can look at further inclusion in terms of providing an overdraft dependent upon how much money he is regularly getting from the customer.
Q: You have been assured that some 2 percent commission...
A: But we were assured that previously as well and it did not happen.
Q: I took one case study on previous Indianomics show, united Andhra Pradesh was most advanced in terms of Aadhaar seeding. They had 8 crore Aadhaar cards. Practically the entire state was covered.
A: They shifted to the post office.
Q: Then how are you so sure?
A: I am not sure, I am just hoping. Rajasthan has its own scheme. So, the state governments and the Centre have to be in sync, Aadhaar has to be there and they have to ensure that we get the direct benefit transfer otherwise there is no other source of funds.
Q: Do you think payment bank will be able to achieve at least in urban areas and semi rural areas what probably basic accounts won't?
A: I am not quite sure I think we need a clear definition for everybody to understand what a payment bank is. Everybody goes back to M-Pesa, which is only a payment mechanism and not an account. The moment you talk of a payment bank the telcos will have to set up all the infrastructure of a bank. Then they will get deposits. The issue is after that are they going to lend? No.
So, financial inclusion is only the first step is the opening of the account. One becomes financially included when you allow him sustainability, which is the next step.
Q: Their first response was that we will get more stickiness in our prepaid accounts so we will follow through at least because there will be benefit for the telecom business even if this one is not in itself paying. You don’t think that logic will work?
A: I think that is for the telcos to decide. They made a lot of noise. I haven’t seen a payment application in with the RBI as yet. I saw something in the paper that we want this concession, if those concessions are given to the banks we can even do equally if not better job.
Q: You never thought of tying up with anybody?
A: We did but it doesn’t work. The pie is not large enough for two people to share. Then each one is saying this is my customer and this is my customer. We actually came up with a joint plan on which we spent a lot of time with Vodafone three years back to launch a better version of M-Pesa which we did. I personally went and visited the villages. Then when we went to the second step we got into issues of sharing the money because the pie wasn't large enough.
Anyway we have done our bit, everybody will have a bank account. So, if they all have a bank account then what is the payment bank going to do?
Q: Let me come to another issue which of course the market wants to repeatedly hear about – the FIPB. Have you any assurance that they will grandfather the clause and allow you to have more FII investments, not treat HDFC as a foreign account. What is the way forward?
A: This is the new India now. You have to think differently. Grandfathering is only one of the options. If you want to promote FII and FDI into the country the plethora of rules that we have is so confusing and I hope somebody understands the logic behind. If FII is coming into our country why should there be any limit at all? They are investing money here under our rules and regulations without asking for management control, I frankly think there should be no limitations.The little that I have discussed with various parties who would be involved in this decision seems to suggest that the general feeling is that we should have a far more liberal regime so that money comes in both FII and FDI. So, I am very hopeful that the end result that we want would be achieved whether it is through grandfathering, whether it is through a liberalisation of the policy I really don’t know.
Q: Do you think you will know one way or the other in a month, in two months?
A: I would say within that timeframe yes.
Q: What if it was negative?
A: I will do a simultaneous issue, one local, one overseas.
Q: Do you need capital now?
A: We don’t need it now but if the rate of growth increases and now Basel III is imposing more and more conditions we would may be need it in 9-12 months or 9-18 months depending upon the rate of growth. So, there is no immediate need. Our total capital adequacy is 16 percent plus and tier-I is 11 percent plus. So, we will need it at some stage, we are just being careful.
Q: I agree with you actually it is not 80 quarters of 20 percent growth it is 80 quarters of 25 percent plus growth but in the last four quarters you have come down towards 21 percent. Will the base be this kind of a showstopper or at least slow you down or do you think you will overcome even that? You overcame it for 20 years will you yet overcome it?
A: Our performance has not altered at all. When we were making 25 percent the GDP for the country was 7.5 percent. I assure you at 7.5 percent GDP growth rate we will make more than 25 percent but to expect me to make the same at 7.5 percent and 4.7 percent I think you would agree there is something a miss in the maths, right? So, the slowdown is because there is a general slowdown in the economy.
Even within that I could still press and make 25 percent but I don’t want to push the envelope because we have the capacity even this. We don’t have bad debts, we have expanded our distribution but we normally don’t like to push the envelope and try and force growth. So, our normal basis for growth is real GDP X 3 is what the system grows at and we gain market share of 4-6 percent. I assure you and anybody else who wants to hear that, that is intact.
Q: Many CEOs I speak to say the vibes are good but on the table I have nothing to tell you that I will grow faster next quarter.A: I wouldn’t necessarily agree with that. Let us put it differently, if we step back nobody has a magic wand that it is going to happen overnight. So, say we were at 4.7 percent, we had low hanging fruits and we have lot of actions that have to be taken for the long run. If we take the low hanging fruit in terms of getting the stuck projects going, getting faster decision making, getting clearer policies, restricting expenditure and defining what is going to happen plus a stable rupee, I think that has happened. So, we have probably touched the bottom and we are recovering.We expect this fiscal the growth to be around 5.5 percent. We really don’t expect new investment demand. There are some brownfields like the motorcycle guys expanding or the consumer durable guys expanding but we don’t really expect Greenfield investment for at least another 12 months because even with the changed sentiment and everybody being positive from the time you conceive a project to the time it hits GDP it is going to be 12-18 months.So, next year we are seeing it around 6 percent and 7 percent or thereabouts only comes year after next.Q: The latest RBI numbers for the sector itself is still 13.A: They went down to 11.8 but I think 13 is about the normalised number. I think you will see pickup in credit growth every quarter but not a dramatic pickup.Q: We are done with the worst you think?A: I think so.Q: What do you make of this wilful defaulter clause and the strengthening of hands of bankers? Will that be a great stick to wield and may be arm twist borrowers?A: A combination of statement of intent by the governor as well as the ministry of finance that bankers money is to be returned is the first step which is great. They followed it up with action. RBI came up with the stressed asset I, stressed asset II basically sending a signal we are monitoring what you are doing and we want a) the banks to recognise problems faster and b) to resolve them faster. The third statement that nobody has a divine right to continue with the project, if he can't run it he has to move out and his equity is to be written off according to chapter 11, I think you are seeing that. So, you are seeing the wilful defaulter example. You are seeing people selling off their assets so that they can pay loans, you are seeing people accessing the capital markets so that they can pay. I would say we are seeing progress, we will probably need to tighten further because ultimately we need a much lower level of NPAs going forward and a clear understanding and a quicker resolution. I think they are determined to do that and that is a combination of change in procedures, law and faster action.Q: What about market development itself? He certainly tried a lot in terms of market development in the 1-14 day term money market. Do you think all that is working easy in the right direction? Will we have a better yield curve some time soon?A: Banks have more than one day money, they have 15 day money. But most of them only want to deal in the call market. So, he has been trying this 14 days, 30 days may be wants to extend it to 90 days but a large percentage is just the bank dealing with the RBI, within each other that dealing has not started. He will have to take a number of steps before it will reach but if you are talking about the debt market then we are a long way off from a debt market. Q: What more pieces do you want, everybody has stated reiterated their allegiance to creating a bond market. I have heard it for 12 years but what is the piece that is missing?A: I think it took Dr Reddy to tell me this in Hong Kong. The problem is the fiscal deficit of the government. If you take household savings at about 12 percent and invest it in financial assets, corporate at about 8-10 percent the fiscal deficit of centre and states combined is 10 percent. So, there is very little leftover. You add to that the fact that most of this gets tide in SLR which you will held and buy so there is no trading and so you can't have price discovery. Since 90 percent of the issuance is government securities they only issue 10 years. 75 percent is in 10 years, 15 securities have 90 percent, part of it is held to maturity and the government deficit is not reducing.Now with the help of lower oil price hopefully greater divestment if we bring the fiscal deficit to 3 percent or below then I remember discussing with Dr Reddy at that point of time, there was a time actually that given the deposit growth there would not have been enough government securities. Add on top of that the key question Dr Reddy asked me, he said you have written all this mechanics about debt market but Mr Puri where is the investor? It is not as of there is money sloshing around. All surplus money, term money is being utilised whether it is insurance or pension or any other long term between the fiscal deficit and other instruments. An arbitrage free yield curve and a proper issuance of government securities and trading starts from that fiscal deficit.
Q: Do you think infra bonds will be some kind of a bridge? A: Infra bond is very good. The RBI recognising that if you are not going have a bond market for two to three years and the banks are going to be financing infra why go round and round the mulberry bush creating IIFL and all those people and then the bank funding it. So they are basically saying we will allow you term money without statutory liquidity ratio (SLR), cash reserve ratio (CRR) so that the price is right. Q: So you might get something of a bond market because ultimately people trust a bank issue, CD's have a better market than any other instrument. A: So you will have a bond market. Instead of corporate bonds being 10 percent of the market they will become 15 percent of the market. However, unless you have an arbitrage free sovereign yield curve and from the yield curve you need to create the derivatives and the derivatives can't be created on a simple bond but one step at a time. Q: Inflation, are you hopeful that now all the pieces are falling in place. Three, four years ago or for the past three, four years an onion or a tomato or one vegetable potato inflation could easily become a generalised food inflation and then a general inflation. It's happened four times and now the governor is insisting that I want fight and win this battle once and for all. You think the ingredients are in place that this time around we are all likely to win. A: I hope so. God has also helped us; Brent is down to sub USD 100 per barrel so that is going to be one help. However, this food one I am really not sure anybody knows what happens, it's just those two three months its picks up. So they are making all the efforts. The governor is in the right trajectory in saying we have got to lick it. If we don't lick it there is no point carrying on and coming up with other measures and saying this will be controlled. We have to have a clear idea. He has reached the 8 percent on consumer price index (CPI) and 6 percent on wholesale price index (WPI) and with just oil not going up you will probably reach 7 percent and then if food comes right you will reach the 6 percent. Q: Would you agree with his position that we have to win this battle once and for all? A: I agree with both his positions, not only that we have to win this battle. I don't think the impediment to investment today is a 25 basis point cut in the policy rate. Interest rate is not the key, there are whole lot of other things which you are aware of, I can repeat them if you want but it will be waste of time. So, I agree with both his statements that it is not the impediment. In any case as of today we have got the call rate lower than the repo rate. So there is enough money in the market. So what are we talking about, why do we keep focusing again and again on interest rate, can we get our infrastructure, our environment, our coal and all of that sorted out and I assure you with a good governor who is respected all over the place, I just came back from London and Tokyo, the monetary policy is in good hands and is not the crucial part for the revival as yet.Q: This infra bonds gave us the idea that HDFC could issue a lot of infra bonds if it became a bank like IDFC is expected to. You have said clearly that infra bonds makes it attractive. What should we assume, how many years must we wait before this giant can become one and actually become the biggest player in the country, which it needs to be?A: This is not a new issue. We have always said that an HDFC, HDFC Bank merger makes sense from a business point of view. Are they regulatory constraints, yes. With the infra bond we have made progress but we haven’t solved all the problems. So a few more regulatory constraints on the static balance sheet of HDFC if that was exempted you would see it fast. At the moment it is not on the table.Q: One of the fears of the investors that now that you are going to be there for another six years for sure actually the merger gets postponed because there are too many good men in the organisation and therefore merging probably somebody will not be around. Therefore actually extension of your tenure is seen as postponement of merger, good analysis?A: Very bad analysis. Let us say there is place for all and even the place at the top – no issue. That is the least of the issues. We are very clear if it comes about how it will be run. Unfortunately we need some help and the day we get the help I assure you the hypothesis that you have drawn out that it was wrong will be proven.Q: Do you definitely need changes in the law before the merger happens or do you think that you will have sufficient number of infra bonds?A: We don’t need changes in the law, we just need RBI to give a few concessions.Q: If IDFC happens and you know for a fact that IDFC got these concessions ….A: Then we will look at it. If it makes sense we will do it.Q: How would you rate the first year, what is the hit and what is the miss?A: You want me to rate the governor? You must be joking. I respect Bimal Jalan and I will go by his judgement which was a 10.
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