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BS
Banking Round Table 2005
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'Retail
Is Bubbling, But Stop Suicidal Pricing'
CEOs
of 10 banks, which control a little more than 48 per cent
of India’s banking assets and 51 per cent of profits,
met at a Business Standard
round table
“Is
there a retail bubble waiting to burst?” That was the
topic of discussion held on October 24 in Mumbai.
The
participants were AK Purwar, chairman, State Bank
of India; KV Kamath, managing director and CEO of
ICICI Bank; VP Shetty, chairman, IDBI Bank; Aditya
Puri, managing director, HDFC Bank; Sanjay Nayar,
CEO, India, and area head, Bangladesh, Nepal and Sri Lanka,
Citibank; Neeraj Swaroop, CEO, India, Standard Chartered
Bank; Niall S Booker, CEO, India, HSBC; AK Khandelwal,
CMD, Bank of Baroda; M Balachandran, CMD, Bank of
India and Cherian Varghese, CMD, Union Bank.
The
discussion was moderated by Tamal
Bandyopadhyay.
Excerpts:
Moderator:
Retail assets in the banking system jumped to Rs 1,89,000
crore in 2004 from Rs 42,000 crore in 1999. Last year, the
contribution of retail credit to overall credit growth was
42 per cent. Over the next eight to ten years, the retail
assets are expected to grow to Rs 12,50,000 crore. And yet,
these assets are only 22 per cent of the total banking assets
now. As a percentage of India’s GDP, they are just
about 6 per cent against 15 per cent in China, 24 per cent
in Thailand and 52 per cent in Taiwan.
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However,
non-performing assets in consumer loans are growing.
So are the delinquency rates in credit cards and frauds
in home loans. The Reserve Bank of India has already
cautioned banks on reckless expansion of their home
loan portfolios and raised the risk weight on mortgages.
Against
this backdrop, we will hear India’s top 10 bankers.
We’ll start with Cherian Varghese whose bank
has seen 29 per cent growth in the retail credit in
the first half of this year.
Cherian
Varghese: There is no retail bubble. If you look
at the demography of our country, 70 per cent of the
population is below 35 years of age. They
are in the prime of their life earning more and more
and their personal needs are increasing. This is an
upwardly mobile population. I believe that the demand
for retail loans is going to be phenomenal.
I
would also like to say that the liability products
including deposits and mutual funds will also be in
high demand. If
the risks are properly managed, there is no need for
any worry. Rather, we should see it as a great opportunity.
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‘In
the credit card business, the approach of people appears
to be borrow more to repay less. And people are being
chased and induced into an urban bonded labour debt
trap’
Cherian
Varghese
CMD, Union Bank
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Moderator:
So risk management is the key. Niall Booker has possibly
been the most aggressive foreign banker on the retail turf.
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Niall
Booker: I also don’t believe that there is
a widespread bubble. India has a very low consumer
loan to GDP ratio relative to other developing economies
like China, Mexico and Brazil. I think there are certain
sociological features in India, which are starting
to drive greater levels of consumption.
We
see the growth of a generation perhaps best personified
by Sania Mirza – a generation that is very comfortable
with having the best of India and the best of the
rest of the world, the sort of Bollywood and I-pod
type generation.
I
believe the consumer business is in a fairly robust
health. There are, however, some pockets like housing
where prices have grown very rapidly. These might
be subject to correction. Well, that is entirely possible
in Bangalore, Gurgaon, and even parts of Mumbai, but
the underlying demand across the country remains very
robust. So, we could see some fall in property prices.
But I don’t think it is going to be cataclysmic,
they are of not the size and magnitude that could
matter.
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| ‘We
see the growth of a generation perhaps best personified
by Sania Mirza – a generation that is very comfortable
with having the best of India and the best of the rest
of the world’
Niall
S Booker
CEO, India, HSBC
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However,
there are some issues, which may not be classified as bubbles,
but are potential threats to growth, and I do not share
my friend Varghese’s positive outlook for deposits.
Money is not necessarily flowing into the deposit base of
banks and going forward that could cause some funding issues
for some financial institutions. It is quite important for
everybody to be mindful of that and to try and ensure that
some of the liquidity in the market finds its way into the
banking system in order to fuel the growth. Lack of retail
liabilities could be a limiting factor, but I don’t
see any bubble at this stage.
Continued
to next page
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Business
Standard •
BANKING
ANNUAL • November
2005
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