Uday to smoothen Kotak-Vysya integration woes: Ex-SBI chmn

Below is the transcript of AK Purwar's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.

Sonia: Your view on Kotak Mahindra Bank deal. Kotak now becomes the fourth largest private sector bank. How do you think things are going to change for the banking industry as a whole?

A: Let us look at the background as to where we are at this point the economic growth of the country. Thanks to the new government, there are lot of positive vibes going on although at the ground level, there has not been much change. Overall the policies which have been taken look positive and therefore the country seems to be poised for a much higher growth rate and what they have witnessed so far.

If a higher growth rate does come in the economy then one of the biggest beneficiary is going to be the banking system whether its public sector and private sector. Hence, there would be huge amount of interest as far as the banking industry is concerned.

However, having said that, as far as this deal is concerned; I have been a great proponent of the consolidation in the banking industry. I personally feel that there have to be not one SBI but at least four-five banks of the size of the SBI where they can compliment globally and domestically compete and therefore this deal should be viewed in that perspective.

Latha: Suddenly now Kotak catapults into more than a midcap private sector bank, it almost entering the large space, so is one plus one going to be four?

A: The merger which has taken place is now putting Kotak Mahindra bank in a different perspective. They never had a presence in south and now they are going to have huge presence in south.

In terms of technology, the other bank that Kotak has acquired is slightly in a different position and therefore the combined entity would get deriving benefits of that and Kotak itself has huge presence in the western side of the country and therefore combined entity will have not only a huge southern presence but also western presence and I personally believe that this deal is going to be beneficial to shareholders of both the banks.

Latha: Vysya was an old private sector bank. I guess ING has made it something of a new private sector bank. How about integration issues? You must have seen them in your time when you kept merging one of the SBI babies into the SBI fold. Would that chip away a bit of the efficiency?

A: Integration would be the issue but I know Uday Kotak personally and I believe that perhaps he is one of those persons in the market who should be able to get through disintegration in a comparatively much smoother manner. 

Sonia: The finance minister had some discussions with the public sector undertaking (PSU) bank chiefs yesterday and he is looking very closely at bringing down the stressed assets for the sector as a whole. What would your recommendations be, what is needed right now to control the stressed assets situation in the banking industry?

A: If you see the stress in assets in the banking industry, most of this stress is happening in mid corporate and small corporate sector. Large corporate by and large barring if you are comfortable, but one thing we must understand that most of these companies have a long history and they have huge domain experience and expertise in different sectors and they supply to lot of large corporate as well as to the Indian economy as a whole. The point is that this sector need to be now nursed carefully and those promoters where the integrity issues are not involved even if the system have to support them and go an extra mile to support them, I personally believe that this should be done.

Latha: You went through non-performing loans (NPL) phase of 2001 to 2004. You got a lot of help because interest rates fell and you got this big mark to market gain from your investment book. Something similar is likely to happen and almost everyone expects that at least 100 bps point fall in yield even if not in the repo rate is on the cards. There are people who are calling for 6.5 on the 10-year. You think that is going to be a big gain and will help banks perhaps give them the courage to lend because you are getting this money?

A: It is not a question of courage to lend. The question is that if these gains are there, how these gains get utilised by the system. If they will get utilised by the system in cleaning of the books, which was done in the period which you are talking about instead of being utilised elsewhere and the asset quality numbers improved, the banking system gained the confidence to lend aggressively. Therefore personally my feeling is that this is the right time when the interest rates are on downward cycle, investment gains are likely to be there. If these investment gains get utilised in cleaning up the books perhaps that will be the comfort which the system requires.

Sonia: The finance minister had some discussions with the public sector undertaking (PSU) bank chiefs yesterday and he is looking very closely at bringing down the stressed assets for the sector as a whole. What would your recommendations be, what is needed right now to control the stressed assets situation in the banking industry?

A: If you see the stress in assets in the banking industry, most of this stress is happening in mid corporate and small corporate sector. Large corporate by and large barring if you are comfortable, but one thing we must understand that most of these companies have a long history and they have huge domain experience and expertise in different sectors and they supply to lot of large corporate as well as to the Indian economy as a whole. The point is that this sector need to be now nursed carefully and those promoters where the integrity issues are not involved even if the system have to support them and go an extra mile to support them, I personally believe that this should be done.Latha: If you have heard this – this joint lenders forums have started by the Reserve Bank of India so that in advance even when people do not pay the first loan or the second month loan, they are coming under the lens. What are you picking up, is that helping exactly the mid corporate you are talking about before they get stressed?

A: The point is as far as monitoring is concerned, there has to be a very strict monetary. If the RBI systems are there for monitoring system - that’s welcome but having said that lenders’ ability to sense that the market and the company and the industry is turning around and the promoters are promoters of integrity and we have to go extra mile despite these issues to bail them out and help them. I think perhaps a lot of work is required.

Sonia: Is the industry turning around. You speak to a lot of bankers. Are you getting a sense that the worst is perhaps over?

A: If you see the infrastructure sector, if you see the road sector at least Rs 25,000 to 30,000 crore worth of government orders are likely to float in the market or floating in the market. Power sector – there is a lot of work that is been done. Coal sector – the ordinance which has come gives a huge opportunity to the mining sector and private sector to clean up the systems, to acquire the captive mines in a transparent manner while on the one hand it helps revenues of the government and on the other these sectors will benefit. My sense is the underlying theme within the economy seems to be vibrant but if you ask me if at the ground level we are not seeing the difference. Yes, we are not the seeing the difference but I believe we have to wait; we have to give government some time.