‘If there is another 70-100 basis points hike, we may see demand getting impacted’: Shanti Ekambaram

What kind of growth do you see for India?

While India is a domestically secure economy, it cannot be completely decoupled from the strong global headwinds. With developed economies like Europe and Japan grappling with looming recession, and US Fed’s aggressive stance on inflation, the global outlook on growth is subdued. A strong dollar and recession in the US will be detrimental to our IT and some export sectors. So, while we are a largely domestic led economy, the global headwinds are something we need to watch out for as there are too many variables. As for the macro picture, we must look at increasing domestic manufacturing. India has significant scope for producing more import substitution to cut imports. But India is always two steps forward, one step backwards. We also have challenges regarding inflation, interest rates, so it remains to be seen how the growth story holds out and how long the retail consumption story holds. Interestingly, India has many opportunities, but many challenges too.

For growth, what will hold the key?

One important factor is oil prices. If oil remains around current level or goes down to $80, India will be in a good position and estimated growth will be about 6.8 %. However, if oil reverses back to its higher prices of $120-150, we will have to fight higher inflation. So I would watch oil price trends and impact on inflation.

The other variable that could impact growth is currency and its stability. India depends on capital flows through FPIs and FDIs and remittance and service imports to support currency inflows. With US Fed relentlessly increasing rates – and we see dollar strengthening further, currency is likely to depreciate and that will be inflationary. In a dollar strengthening environment, how much can RBI keep supporting the rupee? The RBI has already used around $70 billion or so already to maintain stability. Sustained growth needs stable macro-economic environment and this will be determined by oil, currency inflows and inflation trajectory. Having said that India will probably be one of the best-growing economies in this fiscal. What India needs for sustaining growth is also massive capital expenditure on infrastructure and capacity building in many areas including education, healthcare and skilled work force. This will help economic growth for the next decade.

While India is currently stable, it can change in few months. Agility is the name of the game.

We have seen a 190 basis points hike in repo rates, do you see a challenge because of that?

I don’t think it’s impacting yet except for some tempering in housing demand. But if there is another 70-100 basis points hike, we may see a demand getting impacted. We will have to wait and watch.

What are the key areas that need proper handling?

The challenge I see is how to develop core infrastructure. India needs good quality infrastructure. We are a country of 130 crore people, but the addressable market is actually less than 30%. India needs capacity building to harness its “favourable demographics” of young people — education, healthcare, sanitation, connectivity, employment for all.

The other area is agriculture. About 45% of the population depends on it but it contributes to less than 20% of the economy.

We are seeing credit growth now but do you think we are at a scenario where various sectors, may go in for investments?

Pre-Covid economic growth came down to four and a half per cent. Some of this slowdown was one year before Covid and it all just collapsed with Covid. Post-Covid, there’s a reverse trend. So, if you look at April and May, which are normally weak months, demand was strong, and there was a dip in consumption demand for June, July, and August. And now for the festive season, demand is likely to be strong. So, which is why you’re seeing credit growth at a high. Now, a lot of it is led by the retail and SME sectors. So, I think the wholesale sector has segments, which are seeing demand and are building capacity, say speciality chemicals, data centres, renewable energy, warehouses where there is a need to build capacity. But on an average level, capacity utilisation for the first time has touched and crossed 75% , which is good. We are also seeing consolidation in many industries, but you’re not seeing necessarily large new capacities yet being built.

I think if India’s growth has to happen, the manufacturing sector has to invest and grow. I am cautiously optimistic. Consumer demand being led by urban, and rural was not that strong but it’s getting better. That is needed to really kick.

Coming to your bank, what will shape and drive the growth?

Our market share is 2%. So, every area in the bank represents an opportunity, whether it is Consumer, Commercial, Private Banking or Wholesale Business. So, our strategy is to go deep, we are deep in India and look to grow our market share in every segment. We are very focussed on risk-adjusted returns as a strategy. Technology is reshaping financial services and customers are driving the way they look at products, deliver and experience. So our strategy will be shaped by our customers and technology across our various products, services and markets.

From October 2020 the focus has been on growth across the secured and unsecured consumer loans. In unsecured lending we slowed much before Covid because we saw economic growth slowing down. Lending and credit in retail are very closely linked to the economic cycle, job safety, job security, stability, etc. So, this was a great opportunity to start growing. We started with home loans, then went on to personal loans, credit cards, consumer durables and business loans.

How does political stability affect investors?

Yes, political stability is important, and it has been very stable for investors and for the economic environment. What is important that key decisions are taken and there is swift action when warranted. Currently, India is being viewed favourably and GDP growth at 6.8 per cent estimated will probably be amongst the best in the world. Despite volatility we have seen investments, FPI and FDI come into the country as India is viewed as a favourable medium and long term investment destination offering significant potential for growth. I reiterate India is being viewed favourably and is relatively stable across emerging and some of the developed economies.