Concerted efforts from the government and banks will likely ease the pain and calm the panic among citizens created due to the ongoing demonetisation drive, according to IDFC Bank’s Managing Director and Chief Executive Rajiv Lall.
Lall said both banks and the Reserve Bank of India have put in place measures to ensure new currency notes as well as Rs 100 notes are made available across banks. While this step involves additional logistical expenses, especially for rural areas, it is unlikely to impact IDFC Bank’s non-performing assets, he added.
A lot of the bank’s NPAs pertain to infrastructure-led legacy book, Lall said, adding: “About 78 percent of our outstanding still remains largely corporate and infrastructure. I do not think that this is going to affect that portfolio.”
Below is transcript of Rajiv Lall’s interview to Latha Venkatesh on CNBC-TV18.
Q: How has demonetisation affected your business?
A: I would have thought, common sense would suggest that with very systematic and stepped up communication, from government in particular and the banks that this sense of panic will begin to die down. B] As the RBI and banks are able to overcome with very serious effort, the logistical challenges of making new denominations and Rs 100 denominated notes more widely available that this problem will begin to abate. Now, the logistical challenges of making currency available are not insignificant.
Q: I heard so from a lot of bankers, but they also said that by Sunday, the vans were coming in perhaps 3-4 times a day, at least in Mumbai branches. Obviously, in far-flung branches, Mrs Bhattacharya was saying that they are making available creative ways of reaching the currency. I take your point. Let me drill it down to numbers for IDFC Bank itself. You have 6 percent as non-performing assets (NPA). Would you say that this dislocation will create a larger number of NPAs in the second half of FY17?
A: No, for us, I do not think it is a meaningful impact because the bulk of our NPAs are to do with the legacy book. That is all infrastructure. 78 percent of our outstanding still remains large corporate and infrastructure. I do not think that this is going to affect that portfolio. It could be that some of our emerging microfinance portfolio gets affected by this. I really do not know to what extent that might be the case, but the numbers are still fortunately for us, relatively small. But those banks that have very large books that are focused on business banking and low-end small and medium enterprises (SME), if this process of pain lasts several weeks, they might begin to see some stress that will add to numbers. But I am afraid this is just a price that we will have to pay. We will just have to swallow this bitter pill and work very hard to reduce the transitional pain because we know that once we come out of this tunnel, this step has the potential to be take us to the next level in terms of formalising the financial system.For full interview, watch accompanying videos...
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