India staring at banking crisis; bankruptcy law crucial: Sanger

India is no longer an island that gets a free pass, says Arvind Sanger of Geosphere Capital Management. He says global concerns aside, there is a banking crisis in India and the government is unwilling to commit to recapitalisation.

He says the woes of the banking sector need to be dealt with comprehensively. According to him, the bankruptcy law is crucial for banks to recover.

Other than that, even the energy sector is under pressure, Sanger adds.

Below is transcript of the interview.Q: We speak at a time where we have just seen those prepared remarks of the Fed chair and she seems to be indicating and she seems to be acknowledging the tightness in financial markets and yet giving an indication that the Fed is going to be data dependent. Dow Futures as we speak are up and so is Europe. The risk off sentiment has waned to an  extent but what have you made of this intense volatility and particularly the kind of talk that we have seen around banks, the kind of talk about comparisons back with 2008?A: Some of the comparisons are little bit exaggerated but there are real concerns underlying it. One new concern I should mention, when you has Mario Draghi make comments very dovish about doing something at their March meeting you had the Euro weaken for two days and then it started strengthening again which is negative for European equities and they have sold off.Then you had Japan, the BoJ go to negative interest rates a few days ago, you had the Japanese Yen weaken for one day. The Euro weakened for two days, the Yen weakened for one day and then started strengthening again and the Japanese markets started weakening.So, one of the big concerns that investors have is that are we reaching the end of the central bankers ability to keep doing other monetary tools to ward off problems. I think that is the real challenge that if that effectiveness is waning then that creates a new risk profile for investors globally and then you do have issues with emerging markets where there are financial problems, the energy sector there are financial problems. So, there are going to be banks that are going to be banks with bad loans and this could be new round of challenges for some banks. However I don't think it is the kind of  interconnected global financial crisis like 2008. This is a more classic banking issue where some sectors or some countries could get into trouble and banks that may have too much exposure to those could get into trouble.So, that is the backdrop. Therefore the central bankers ineffectiveness and global growth being weak is the bigger problem. Q: Given your concern on Indian banking and you are actually saying that this could be a full blown crisis, how much more for the index then. Are we just sitting at the tip of the iceberg then at 7200?A: I keep hearing about a lot of people going to the finance ministry and making presentations on the banking sector. So, in that sense I don't know if it is the Budget or in connection would that become more critical here which I usually I don't pay attention to is to are they willing to take some tough action and some necessary action and some recapitalisation of the banking system because this is an important thing that cannot be kicked down the road much more. Also we talk about parliament not functioning having a reasonable bankruptcy law in place which is needed I am not sure how that will work for existing troubled assets or not but that will be helpful in terms of your recapitalising the banks you want to make sure that you have a healthy backdrop for future problems that come up. So, this becomes important. In the meantime index will remain at least range bound and if you don't see anything out of the budget in terms of taking a hard decision of the banking sector then you could see another leg down. So, the market is unlikely to go up unless this happens. It could lower, it certainly could but the banking sector problems are becoming larger than we anticipated and the lack of action from the government is becoming glaringly obvious now.Q: If we don't get anything specific in the bankruptcy bill in the next couple of weeks or something specific in terms of dealing with this NPA mess would you hazard a guess, how much lower for the index, 5, 6, 10 percent?A: I certainly think it is going to dip below 7000 but that is a very small number, that is only three percent. So, then it becomes more a question of 5-10 percent is not inconceivable. It depends on how the banking situation plays out in terms of the bad loan situation but you certainly could risk going back to 6800 or lower. That is not our central case but that is a concern that we have right now that the banking sector is such an essential underpinning to the whole economy and the market that we need to have a greater sense of where things are going and that is missing right now.(Interview transcribed by Binu Panicker and Swapnil Deshpande)