Consumption side to pick up fast, real estate a worry: Amitabh Chaudhry, Axis Bank


Lending to the real estate industry and reviving the demand and money flowing to the real estate industry will remain a problem over a period of time, says Amitabh Chaudhry, MD, Axis Bank. Excerpts from an interview by ETNOW’s Nikunj Dalmia at Times Networks’ India Economic Conclave.

Which part of the economy is about to pick up, which is yet to pick up and which will never pick up?
Wish the answer was as clear as that. Parts of the economy which are impacted in a big way or which are being talked about are real estate and auto — broadly the consumption side of the economy. I believe that the consumption side of the economy should pick up, given some of the steps which the government is talking, has already been announced. They have hinted at what could be coming up in the Budget.

As far as the auto side is concerned, they realise that the problem which started more than 12 months back with inventory piling up at the dealers level, have been sorted out. They have become quite aggressive with their discounts, with their new models and I believe that at some stage, the autos might bottom out and you might see a revival there.

Some new mines are also being allocated. My worry is real estate. Real estate has been a perennial problem, it has been there for a long period of time, especially on the residential side. As far as the larger projects are concerned, a lot of developers are in trouble as they are over-leveraged. They have been used to working in a model which necessarily is no longer kosher now.

So lending to the real estate industry and reviving the demand and money flowing to the real estate industry will remain a problem over a period of time.

The government has taken some specific steps but those steps will take time to implement. Also there is a question mark over whether the amounts being talked about will be good enough to revive the demand. I would worry about real estate industry a bit longer than some of the others.

But the flip side of the same argument on the real estate is that a lot of us are large lenders to individuals, who are buying real estate. There you are not seeing any sign of trouble as yet. The NPLs or the delinquencies remain at low levels. If you have selected your customers in the right way, you are not seeing those signs. But this cannot continue for the longest period of time because real estate is the largest employer.

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Real estate sentiment impacts both the customers and the business side very quickly. It also has a lot of taxes attached to it. That benefits both the centre and the state and reviving that sector would be an important thing to do.

If the real estate sector was to revive especially on the residential side, some of the problems on the NBFC side will also start looking lesser, because a part of the problems in the NBFC side are driven by the kind of exposure they have on the real estate. It is all intermixed to some extent.

So the out of jail card for Indian economy is that real estate prices have to go higher. But what if they do not go higher? Nobody wants real estate prices to go higher if you are planning to buy a home?
I am not saying that the prices have to go up. The flow has to happen and that does not mean that you are not a buyer at all. You are a buyer at a certain price, which could mean some discount but you could be a buyer at some stage. Today you are waiting because may be you are hoping that the real estate prices will fall further or you are hoping that may be it is not the right time to buy or you just have negative sentiment.

Somehow, if the inventory starts flowing and starts coming down, then it will help the developers automatically. It will help the NBFCs. Some of the data which is being quoted is that real estate has a $40 billion problem and 85% of that is in greater Delhi and Mumbai alone. It is just a question of getting that flow back so that the real estate players can start investing in projects, finish incomplete projects and hopefully then the NBFCs also will start getting some of the liquidity back in the system.

The banking system is also opening up, it is not going to happen overnight it will take time because bankers keep drawing lines in the sand. We keep allowing it to go further and further from a risk-taking perspective but when we take a huge loss, we tend to go back and draw the line in the sand again which is very, very tough. It will take time for the bankers to start opening the purses in a different way in the very near future. But the flow will help in a big way.

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The minute you joined Axis Bank, we said look he has come from HDFC Life and he will acquire an insurance company. One of the names being talked about is Max?
If I read the analyst report that is the first thing I should have done. I should have gone and acquired the insurance company and that is what everyone said, that within three months of joining, it will happen. It does not happen.

Couple of things one is that you know the fact that I am from the insurance industry does not mean that is the first thing one needs to do. Yes as a bank we have an opportunity in front of us which the bank has talked about for the longest period of time that we can potentially get an asset in the insurance industry which can add value to our shareholders and obviously if it at a price so that can add value to our shareholders. We should get an advantage of the fact that we are a large distributor of insurance products.

In the coming decade, which is like 15 days from now. do you think owning insurance company will be a part of your core strategy?
See because you are a distributor, you have two choices before you. One, you remain a distributor because you do not want to confuse the customer that I am a biased party because I own an insurance company and that is what I want to sell. But also at the same time because you are very large distributor, you have the potential to own a large stake in obviously “subject to RBI” giving its green signal.

You have a potential to own a large stake in an industry which has a long way to go in terms of its potential in the Indian market place. India is under insured. Insurance industry potentially will add a lot of value and there will be number of companies which will emerge, which will have huge market cap in the next decade or 20 years or so. If that opportunity comes along. we are of the view that having a large stake will add value to our shareholders. And it will give us hopefully a leeway in the future. Let us say if we needed capital we could use that stake to raise capital rather than diluting ourselves in the bank itself. It is just it creates optionality for you.

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So if we are given the right to play in insurance space, we will like to play. Now what that form and shape would be, we depend on what opportunity comes before us.

Axis Bank has given 100x is in last 20 year. It cannot happen in next 20 years. But the reason why Axis Bank has managed to give this return is because you or your predecessors were able to create a formidable retail franchise. Now SBI told us that they are going after retail franchise, Kotak is a retail franchise. If everybody is trying to become a retail bank, who will lend money to the corporates?
That is the new mantra. Every bank is talking about retail and the reason we will also talk about retail is because we still have got a long way to go in terms of what we as Axis Bank can do in retail. Our market share in terms of deposits is only 4.5%. We are under penetrated amongst our existing customers. If you look at our penetration levels and how many customers carry our credit cards, how many customers of ours have taken loans from us, that number is still very small. When we compare ourselves to what the best in class is doing in India and then compare yourself to what the best in class is doing in developed markets, we are a long, long way away.

It is an untapped opportunity for Axis Bank and there is no reason why we should not go after it because the returns from the business are quite good, risks are well diversified and as you very rightly pointed out, my predecessors have done a great job in building such an incredible retail franchise. So, we are doubling down on it, we are investing in it and our belief and desire to grow retail remains very strong.

Other thing which we were seen to be talking about is MSMEs. Through the aggregator account, the access to data becomes available and the ability to lend to some of these sectors will obviously get enhanced in a very meaningful way. You can underwrite better and that could be another space where people can grow.





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