We should not wait for the Budget to take care of the economy: Chanda Kochhar


Chanda Kochhar, MD and CEO of ICICI Bank, spoke to NDTV on the sidelines of the World Economic Forum in Davos, Switzerland. She says that the mood at Davos is much better with the global financial markets looking more stable and governments working in a more coordinated manner. She adds that the recent reform announcements by the Indian government have created a positive mood, even though the world expects India to better than what it is doing.

Here is the transcript of the interview:

Shweta Rajpal Kohli: She is among the most powerful women in business. It's a pleasure to have with us here in NDTV studio in Davos Chanda Kochhar. Thank you so much ma'am for sparing time to talk to us. What is the sense you are getting in Davos, both in terms of global economy and how the world is viewing India?

Chanda Kochhar: Well, I think as far as the global economy is concerned the mood is much better than what it was last year. And you know as far as the entire euro zone is concerned, I think the financial market is looking much more stable. The governments seem to have found a way of working in a more coordinated manner and seem to have found balancing in the fiscal tightness as well as providing the segments that need money. But of course they are not very clear that from where the next round of growth will come from. So i would say that some of the downside seems to be away, but yes not much clarity on where the upside will come from.

Shweta: All right, no clarity on the upside. Let's shift our focus on India because that has been another cause of huge worry. The sharp slowdown we have seen, the policy paralysis. Do you think the recent measure that the government has taken is showing up in terms of an image? The perception of India is changing on a global platform?

Chanda: I think two things as far as India is concerned. There is definitely a very positive mood around the recent announcements that have been made. That has created a whole lot of positive mood. But at the same time I must say that the world expects India to do better than what we are doing. I think all believe that India has a much larger potential and they actually want India to move and get that rate of growth.

Shweta: Many actually feel that we have lost precious time, lost economic momentum in the last few years, and it's very difficult to cover it up very quickly because even for this government there is very limited time that is left. Do you share that pessimism? Do you share that concern that we have limited time to cover up for what we have really lost in last few years?

Chanda: Well the fact that we have lost...I always say that because every time we say that 5.5 per cent, 6 per cent and 6.5 per cent is very good. But it's not to our potential. Yes, I think every percentage of GDP lost is a loss in the sense but my feeling is that covering up should not be difficult if we really get our act right. Fundamentally we still have the demographic dividend playing for us. Fundamentally there is demand for every product that we may want to produce. But the biggest challenge is that we need to create an environment, where we allow production to take place, where we allow projects to get completed and allow the revenue to start. So I think if we get our act right, restarting and re-kicking and getting back to higher levels of higher growth should not be very difficult.

Shweta: And part of creating an environment is also about perhaps lower interest rate and we know there had been enough talk about how the Reserve Bank of India has actually refrained from easing up monetary policy by cutting rates. Do you finally see it happening next week?

Chanda: First I think that i should put it on record that the regulator's job is a tough job. They have to find a balance among many parameters and I think that's what they had been doing, but from here on I do expect that there would be some rate cut in the January policy itself, which is in the next two or three days.
Shweta: How much? That's the curriculum are we expecting -- 25 or 50 bps and that's where the real division that most people are expecting the rate cut to happen. What's your take?

Chanda: My view is that over these 15 months, that is up to FY14, we should see about 100 bps rate cut. May be it will start with 25 bps this January.

Shweta: All right. What about how you would react to those who say it's coming too late -- the rate cut -- and also the kind of stress that we have seen between at least the Finance Ministry and the RBI where there has been an increasing call from North Block to go ahead with the rate cut much earlier, saying that the government has done its bit and it was the RBI's turn to respond and they did not. How would you respond to that?

Chanda: You know it's very easy to keep responding to what someone else is supposed to do. I would really not get into that but I would say for our economy to move there are many things that we need. A lower interest rate is definitely one of them, but it is not just only interest rates that will bring back investments. To bring back investment we also have to focus on the existing projects that have been completed. They actually start seeing cash flows, those power projects, the fuel linkages is a problem, they get their fuel linkage, those projects, those mines where environmental clearance have not come, they start coming, so i think for the economy we need the entire ecosystem to move or not just one factor or the other.

Shweta: And that brings me to the point that if the ecosystem is actually moving. There's been some important measures, like the cabinet committee on investment. How critical are those measures and do you see the entire system moving because we have focused on some reforms like FDI and others. But many believe that we need to do lot more on actual execution of projects.

Chanda: Yes indeed. I think the moves on FDI, etc., are very good for medium and long-term but here and now we actually need the projects moving. The concept of this cabinet committee, I think it's great because what we need is really a holistic approach to every project and say these are the five things that are required to make the project going and let's get it going. So I think the concept is very good and very strong. Well we have to see how it actually starts operating in real terms.

Shweta: Overall fiscal deficit is a worry. How concerned are you about India really missing the target?
Chanda: I think the fact is that as a country we need to work on fiscal consolidation, but you know rather than a target I would say even from these levels if we lay out our plan for the next two or three years and every quarter we show we are working towards it, i think that will make a lot of difference. And again coming back to whatever we have done in the last three months, I think there are positive signals we are taking for fiscal consolidation seriously and I think the Ministry of Finance is definitely taking this whole fiscal consolidation seriously, and I am hopeful that we will move in the kind of right direction. But as i said what is important is we have to lay out a two- or three-year plan and clearly not just wait for every Budget to save what we have done...on a continuous basis keep taking steps to move in that direction.

Shweta: What we have done in the last few weeks and months...that's enough to satisfy the rating agencies who keep threatening time and again to downgrade India?

Chanda: Well I think it's good to satisfy people about the intent and about the direction. I would definitely not say it's good enough to say these measures will get us to our target, but as I said it conveyed an intention and direction, and if we continue to move on that then i think it would be a positive step.

Shweta: Talking about infrastructure funding requirement, we are talking about $1 trillion and that's the kind of figure doing rounds. Do you think the banking system is up to it, to be able to fund that requirement?

Chanda: The banks in India have been one of the major contributors in funding infrastructure investment in the past, but as the economy grows and develops, we have to look at both widening the sources of funding the infrastructure and deepening the existing sources. So what I mean is actually we should now have more and more longer terms, funds like insurance product or insurance company pension fund, participating in funding infrastructure. Also the infrastructure debt fund are going to become active. In fact ICICI is setting up one of India's first infrastructure debt funds and which will become active very soon. So what we have to do is we should get into a momentum where the banks should initially fund infrastructure projects because they are the ones who can assist risk and take risk, but once the project is completed over next three or four years. There should be these long-term funds like insurance funds, pension funds, infrastructure debt funds that should take on those loans because the implementation risk is behind and that would free up the banks to do the next round of infrastructure fund and that's how we should do rather than actually saying once the bank fund the projects, those loans remain with the bank for the next 15 years. If that happens then the bank runs out of there liquidity and exposure limits. We really need to get to that banks look up the initial risk, won the projects initially and moves.

Shweta: There is capacity and room to do that you are saying?

Chanda: Yes there is. We need some changes in the guideline to enable many of these pension funds, insurance funds to participate in long-term funding. We definitely need some changes. I think in the infrastructure debt side a lot of changes have happened and I am hopeful that this fund will become active very soon.

Shweta: Let me shift focus and talk about the health of the Indian banking sector. We do keep talking about the fact that yes our fundamentals are very strong and we continue to be strong fitting, but there have been concerns that have been raised in the past. Are those concerns unfounded?

Chanda: Sitting in Davos we have these industry partners meeting and the whole day I spent with the banks and insurance companies across the globe and I must say that I come back with the feeling that the Indian banking industry is very, very strong. Our leverage levels are low, our capital levels are high, we run very high capital adequacies, the regulations are very prudent. What mainly in India we keep talking about, the asset quality concerns. I think we should remember banks write the economy. Whatever happens to the economy the banks cannot escape that entirely. But having said that if you look at the NPA (non-performing asset) numbers of the entire banking industry, add to that the restructured assets...  But i am saying that the worry seems to be overdone. In my view, there is certain level of NPAs, there are certain companies restructured, there will be few more to be restructured but in a growth economy like India restructuring does not mean these projects become NPAs forever. Restructuring means this project needs hand holding for some time, but gradually as the issues are resolved, whether it's a fuel linkage for one project or some other clearance for some other project and so on, I think there is such strong underlying demand for those products that this projects starts performing once those temporary issues are resolved. So the Indian banking industry has seen that the movements from restructured to NPAs had be just about 10-15 per cent. So if we talk about 10-15 per cent or even 20 per cent moving to NPAs, I think we are talking of asset quality levels that are not unmanageable and I therefore think that while we all need to monitor our assets because of whatever is happening in the economy, I think we should not be worrying about big catastrophes in the banking sector on account of this.

Shweta: So you are putting to rest all those fears and doubts over the overall assets quality on the strength of Indian banking quality. Share with us the outlook for the banking sector for 2013.

Chanda: I have always believed that the Indian banking sector can always grow equal to about 2.5 times the GDP growth rate. Once the growth rate is adjusted to the GDP growth rates but I would say the growth is coming in a very diversified manner, so there is retail, housing, vehicle loans, there is SMEs , there is corporate, other project funding and so on. What the banking industry would also see that there is a scramble for deposits. The deposits have not been growing as much as expected. I would say there is going to be growth but I think every bank had to look at how do they use all there resources most efficiently. How do they use their branches most efficiently, raise deposits, lowest cost of deposits, the best mix of deposits, monitoring of assets will continuously be required and of course the talent and so on. One cannot say there will be no volatility in performance, but clearly there is growth and clearly the focus has to be in productivity, efficiency, monitoring and so on.

Shweta: You are actually to talk about the interest rate side. Significant cut you are going to see in the financial year. Do bank have the ability to pass that on?

Chanda: Banks' ability to pass that on not just depends on the policy rate cut but also what happens to their cost of funding, which in turn depends on the growth of deposits in the system and the composition of those deposits. I must say that in the system, current and saving accounts are not growing as fast as what they used to in the past, so I would say while even for the bank lending rates there is a downward direction but whether it will happen at the same pace policy rate or it will follow with a lag is what we will have to see.

Shweta: Just a quick word on regulation. You talked about the regulation of Indian banks, something which is a talk here in Davos. But a big debate in Davos is over all the regulation of the banking system, the global and there has been an interesting heated debate on what we really need. Do we need more regulation or not? What is the sense that you are getting from here?

Chanda: Prudent regulation is always required. Sometimes I believe globally at last we have moved from one extreme to the other. We were at one time, in terms of global regulation on the banking sector, a very, very light touch regulation and from there on the regulation is moving to a direction where it is believed that capital is the cure for all evils. Increase the requirement of capital and add a buffer for conservation, add a buffer for systematically important institution and keep adding buffers. I would think somewhere we have to get back and think if there is so much of capital required to do banking and is that the cure for all evils or are we actually reducing the capability of the banking sector to fund the growth of the real sector. I think that understanding of finding that right balance between saying banking sector has to take some risk, a banking business is not a zero-risk business. It's a prudent risk management business, so how to find that balance between not just over regulation but allowing banks to fund growth, especially in the developed economy. The banks need to fund growth because they need to go back to growth. In the emerging economies like ours, there is so much requirement for credit, fund infrastructure and so on, that we have to create an environment where banks can fund growth.

Shweta: We are hoping 2013 would be a better year for the Indian economy and Indian banks. Let me actually shift gears and talk something which is reverberated across the country. Christine Lagarde of the IMF actually dedicating a moment to India's gang-rape victim. We also have seen the Justice Verma panel also come out with sweeping changes to India's anti-rape laws. As India's is one of the most powerful women, how sad do you feel about the turn of events and what according to you is needed to bring about the changes?

Chanda: Well it's not just one event that has come to light. This has been happening continuously and I think i feel very, very sad about it. I would just say this event is a wake-up call for all of us to say we need to get together and do things to cure this and here i think again...I always talk of the entire ecosystem and what I have to do and look at what has happened to our entire infrastructure. As far as police infrastructure, as far as the judicial system, cultural mindset that we are building in, so I would say that the fact you saw people coming on street, not just women but men also makes me feel there is an awakening here, but just that awakening is not enough. I think we have to act and act quickly and pass some judgment that will convey that we are serious about taking some action and then follow it through and I just hope we do not forget this event after a few months as one more event. We get our entire infrastructure, whether it is judiciary, the police, the security and so on, are actually gearing up.

Shweta: Is it not irony where we are talking about women like you breaking the glass ceiling, reaching the top leadership position, quality at the work place, and yet we have a society where women are given second-class treatment.

Chanda: Therefore I think it is more about basic safety and security. In terms of mindset there is culturally a felling I think that gender quality is more important, and let me just say that it is not just culturally felling, we have to recognize as an economy that almost 50 per cent of our talent base is women. So if we want to grow our economy by 8 per cent, 9 per cent and 10 per cent, we cannot ignore the 50 per cent of the talent base. They are going to be people who will provide the talent, the next round of demand, they are going to be consumers, employees, mothers, so I think the Indian women force is going to be a strong force for the Indian economy and therefore for the global economy. So we need to recognize the importance of the force and make sure the force to get their due and perform and contribute to society and economy.

Shweta: But the sad reality is that the recent gang-rape has shaken the confidence of the Indian women. Do you believe it will have a detrimental effect, increase the participation of the women in the work place? What you have a response coming that women need to get back home early, so what we are seeing not a system that is making us feeling safer but perhaps saying we are moving to a regressive mode where all that we need, ensuring women are out late, that they get back home. Are you sad by the response coming? Also Justice Verma panel suggesting some for the sweeping critical is it going quickly?

Chanda: No I don't think it's regressive in that sense of people developing another fear. I think the fact that was happening was known across, so i would actually think and hope that this becomes more like an awakening, even for all of us to take more action. For example, what we have done in ICICI make sure and more frankly it was not over the incident but over the last few years we make sure if women work late then definitely there is someone from the office who drops them. If women have marketing calls to make in the evening, we have some process laid down about what they should do and not do and after what time they should go and not go. So I think it's better to recognize there is some different kind of security that women need and maybe late in the night and may be call it as against gender equality, that's just a recognition of the fact that we need to have and it's better that we are gearing our system to take care of that.

Shweta: On the administration, the police and you feel that corporates need to ensure more safety for the women at the work place?

Chanda: Yes absolutely. I have in my organization. I have my meeting with my employees in separate groups where I just choose a group of different kind, 15 to 20 people of some communality and I just set and talk to them and I just sometime chat with women groups. I have chatted with them earlier and even after the incident. They feel that as long as we have the process laid down and how we have a way of taking care that women are safe in the evening, they derive a lot of confidence out of that.

Shweta: Let me talk about the upcoming Budget. There is a lot of expectation that this will be a very big budget, mixed perhaps of populism and reforms. Given that it's before one big budget we see general election happen. Give us a sense of what you are expecting and what's your wish list?

Chanda: I actually always say that we should not only wait for the Budget to take care of the requirements of the economy. Currently, we are at a stage where we keep doing things all the time because in a way we have lost some momentum and we need to work on a daily basis. So my whole expectation would be that everything that we can do in the budget to promote growth and to work towards fiscal consolidation. I think these are the two most important requirements of our country today and fiscal consolidation must be of medium-term kind of a path as I said and promoting growth has to be here and now. Got to give back business confidence for them to start reinvesting and I think we just wait for announcements once a year. We have to look to a set of projects. My belief is that if today 15,000 to 17,000 megawatt of power capacity is lying idle, these are the projects that have been completed but are not operating to their full capacity because either coal or gas is not available. If you make this capacity operational you are going to add a substantial amount in the GDP of India, so that's what we need to focus on and that cannot be done once in a year. That has to be done on a daily basis.

Shweta: Would also like you to touch upon another aspect, which is taxing the super-rich. Do you think that in a country like India, taxing the super-rich to pay a lot more towards the taxes...?

Chanda: It's a question of how revenue and expenditure is balanced for an economy. I am not an expert on that, I think right now for India fiscal consolation is very important, so if that is that one more requirement to get to fiscal consolidation well probably yes. I am not a big expert there but what I clearly want is a proper path towards fiscal consolidation.

Shweta: At last we hope things are happening. The finance minister is...with his FIIs, with his investor road shows, taking some of the tough decisions. Do you see this momentum continue because many actually fear that populism will soon give way? So do you fear that the whole reform-oriented mood of the government will shift to slightly populist, which necessarily may not be good economics?

Chanda: No I am actually more optimistic than what you are sounding. I think there is a clear recognition of what we need to do for the economy and there is also a understanding of what requires to be done. So while one cannot escape the populist measure, I don't think populism will go far to sacrifice a lot of what is the underlined need for the economy. So i don't see this momentum taking a U-turn but the pace of the momentum has to get accelerated, that what we have to hope for...

Shweta: All right, Miss Chanda Kochhar, it's a pleasure to talk to you always.


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