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    Areas showing early caution are unsecured personal loans and credit cards: Shanti Ekambaram, Kotak Mahindra Bank

    Shanti Ekambaram-1200

    Story outline

    • India fine from mid-term perspective but investment needed to kick start economy.
    • A 25 bps rate cut is almost a foregone conclusion.
    • Rejigging NBFC biz model should take six to 12 months.
    Macroeconomic stability and revival needed for consumption slowdown to stabilise, revive and start upwards, Shanti Ekambaram, President, Consumer Banking, Kotak Mahindra Bank. Excerpts from an interview with ETNOW.

    Has the consumer finance boom peaked out in India? What do you think are the primary factors driving this trend?
    The slowdown has been visible for some time now and it really started post the busy season last year in November-December. It was not as robust as one would have liked it to be. It really started with the auto segment.

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    Over the last two quarters, you have seen auto as a segment where the slowdown has manifested in a big way. It is very closely linked to the underlying economy. It started with cars, it is now in commercial vehicles, construction equipment and so on.

    Real estate has been in a difficult situation for more than a year. However, housing in the affordable housing segment as well as in some cities with genuine buyers has seen demand post RERA and post other regulatory compliances. That has been steady but overall still down.

    In the last three or four months, segments like consumer durables which otherwise were holding up are also beginning to see a little bit of a slowdown. There has been a slowdown in consumption over the last six months but it is becoming more visible.

    I would very closely link it to the overall macroeconomic situation where there is a growth slowdown. I divide consumption into urban and rural. The business and the salaried class, both rural and urban, have been seeing the slowdown.

    If you look at the business class, you know what SMEs and MSMEs are going through and there is a slowdown in consumption and no new demand has been created. If industries are going to go through pain, there could be some job losses. So there is a caution that has come into consumption right now.

    If you look at the commentary from the HDFC Bank or the slowdown in HDFC Bank in Q1 which wiped out nearly Rs 25,000 crore of market cap in just one day, indicates mass slowdown in domestic consumer spending trends. But you also have been reducing your exposure to consumer bets like Arvind Fashion and adding insurance and other financial companies. Tell us a little bit about the thought process here.
    As the economic growth slows down, it is going to continue and it requires two-three things to reverse. One, as infrastructure spending by the government picks up and investment by the private sector, which is not seen right now, I am hoping there will be some revival of demand.

    As it looks right now, there is a global economic slowdown. There is domestic economic slowdown and you are beginning to see that gather steam now. It requires macroeconomic stability and revival for us to see some kind of consumption slowdown stabilise, revive and start upwards.

    What do you expect in terms of the overall liquidity situation because as of now, we have seen a massive FII exit. Are there brighter opportunities within the emerging markets pack for the foreign investors or will we see India get back on track? What could lead to that?
    From a market perspective, you have seen a large outflow from FIIs and it is both India’s growth as well as certain budget announcements that may have caused this. But if you look at the broader market, it is still the top six or seven stocks that have been moving the market for the last two quarters.

    As you see slowdown at a larger level, you see people have significant ownership. India from a medium term perspective looks extremely attractive. We still have 7% growth versus what you are seeing in the world, in certain areas zero or even negative growth or negative interest rates. So from a medium term perspective India is still fine but we need investment to kick start the economy.

    We need more job creation and that will hopefully come from the investment. We need to build up massive infrastructure. A lot is being said and discussed but there is a lead and a lag effect and I am hoping that this busy season, we will hopefully try and see some of that slowly come back into the market.

    What are some of the other areas where you anticipate reduced exposure going forward? Also, where would you be scaling up positions next year?
    In the consumer space, home continues to be stable; cars demand has come down but they are still a stable segment from an exposure perspective.

    The only area that is showing some early caution is really the whole unsecured personal loans and even to some extent, credit cards where it is not a runaway situation but you are beginning to see a certain amount of caution.

    The consumer from a segment perspective will continue to be a focus area for us and across banks, but we would look at what you call the secured, the home, the individual versus what you call some of the unsecured lending as you see the situation pan out.

    For example, by the busy season, if you see things stablising, then there is still underlying consumption demand. It has not completely collapsed but rather slowed down.

    Everyone has been waiting to see when the transmission of rate cuts starts to have a visible impact. Also deeper cuts are expected going forward. How do you think monetary policy is going to be and what will be the impact?
    A 25 bps rate cut in the monetary policy is almost a foregone conclusion and that is certainly my expectation. The interest rates in the last three to four quarters have certainly trended down. Take cars. The new cars rates are possibly at all-time low, but that does not mean more cars are selling. There is still a problem. So, the rates have been coming down, banks have also been bringing down and some amount of deposit rate though the government small savings rate is still quite high.

    Transmission has happened and will continue to happen. For now, I can say that 25 bps in August policy is for sure. Thereafter, it will be data dependent. One, we have seen that monsoons despite a late start, has reasonably caught up. That should ensure agriculture and some amount of consumption even in the rural areas. Thereafter it will be based on data both on inflation and growth and it is a balance between the two.

    What is the outlook on PSUs as well as the overall NBFCs, given the acute stress we have seen here?
    The government has announced a large capitalisation of the public sector undertakings and that should give them a shot in the arm to be able to look at lending. There are many other issues with governance structures etc which is a different story but at least they would get adequate capital to be able to start lending again.

    NBFCs is a different story; one, people have to get over the current troubles of both liquidity and solvency across various companies. There are tighter regulations that are coming in and the whole business model will have to be rejigged and worked within the framework which in my mind should take another six to 12 months.

    But with an injection of capital, PSUs should be back in the market for lending. In this whole process, there is a lead and a lag. It will take the next six to 12 months, the NBFCs maybe a little deeper but PSUs within the next six months or so. We will have to wait and watch.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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