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‘There Have Been No New Bad Loans Or NPAs In Last Two To Three Years’

Author: Kumar Shankar Roy/Wednesday, June 12, 2019/Categories: The Finapolis Conversation

‘There Have Been No New Bad Loans Or NPAs In Last Two To Three Years’

Markets have been buoyant since the BJP-led NDA’s landslide victory in 2019 general elections with BSE Sensex breaching the 40,000 mark, while Nifty surged past 12,000 at one point although the gains were erased after the recent RBI monetary policy. While the excitement seems palpable, it remains to be seen if corporate earnings also exhibit the same euphoria that the markets did. In an interview to Kumar Shankar RoyKamlesh Rao, MD and CEO, Kotak Securities talks about market outlook, valuations and reforms. Excerpts from the interview.

Banks are projected to deliver a huge portion of the earnings growth of the Nifty. Why are you then saying that the economy is in good shape? If it was so, then all sectors would have contributed, is it not?

If banks turn out such numbers, it indicates that banks would have done good lending. Where does the lending money go? The loans would lead to a spike in the overall consumption. So, I am saying that being dependent on banks is not a bad thing. 

If the profits come out of lending, that is good. But is it so? We hear that profits would be made due to unlocking of bad loans. Then, where is the question of lending leading to a boost in consumption and demand?

Let me answer this question as a banker. The thing is that the money that a bank makes is always in the last few installments! For instance, if you give car finance for 3-4 years, the profit that you make is in last 6-8 installments when paid. Because before that you are only recovering principal. Coming back to the banking sector, you would find in the last 2-3 years there have been no new bad loans or non-performing assets (NPAs). All the existing pain is due to what banks did in the prior period. This means as banks and financial services firms, one is in a sweet spot. One, you have no new pain. Two, the resolution of the past pain is expected to happen. This will boost profitability. The fact that nothing big will hit you is comforting. 

Government formation has happened at the Centre. Markets have already reacted positively. What should the government do now?

There are 7 focus areas to boost economy.

Infrastructure: We need Rs.100 Trillion investment by 2024. This would go into roads, gas grids, metros, railways, ports, regional airports, and coastal development.

Rural focus: We need to see doubling farmers income by 2022. The goverment is expected to spend Rs.25 Trillion in agri-sector to improve productivity. More than 50% rural population accounts for 18% of GDP.

Housing for every family by 2022: Pushing for affordable housing. Encourage FDI through REITs.

Attract FDI in manufacturing to make India a global manufacturing hub: This would happen if we improve land & labour laws and also improve ease of doing business.

BFSI reforms: There is a need for fasten IBC resolution process. Government must solve liquidity situation of NBFCs.

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