Bitter pills necessary for growth: Shikha Sharma
Axis Bank MD & CEO Ms. Shikha Sharma believes that the faith in Indian market is slowly returning. The pro-development growth agenda followed by a strong leadership at the Centre will boost confidence of both external and internal investors.
In a candid interview with Mihir Bhatt of Zee Media Corp, Shikha Sharma shares her views on India`s growth prospects, upcoming Union Budget, inflation and much more.
New government has just completed 30 days. How would you rate its performance in the first 30 days?
30 days are too less too evaluate someone`s performance. I think, what is encouraging is that whatever messages the government gave during its campaign--pro-growth, pro-jobs, development oriented-- there is a continuity of the same vision. There is also consistency in what you hear from different ministries. There is confidence building. The few steps that have taken place already have all been in the right direction. So I think it is definitely calming and will boost confidence for both external and internal investors. The sentiment has been changed dramatically.
Excise relief which was extended for few sectors has been extended till the end of this year even before the budget announcement. Do you think this pro active approach sends positive signal?
The interesting thing is, we are not waiting for the budget. If something is creating a problem today, you must fix it today itself and need not wait for the budget. Budget is fundamentally a statement of balancing revenues and expenses and that is what we should hope to see. Policy changes can happen before, during or after the budget also. Good excise extension has been done right now so that things don`t come to a standstill till the budget.
When Mr Modi assumed office, the common man expected immediate relief from price rise. Don`t you think rise price of gas, onion will create a imbalance in the overall environment?
Ultimately we all voted for a strong, pro-development and pro-growth leadership. Sometimes we have to swallow some bitter pills that are necessary for the growth agenda. Decision of hiking fare was a right decision, but it could have been done in smaller doses. However, there was also a partial rollback. Somewhere I feel people should also be ready pay for the service quality. If you want to remove supply side constraint and solve inflation problem then you have to make investments attractive.
Gas price hike will have a wide ranging effect from power plants, CNG and everything. Do you think approach on that side should have been a little cautious. Do you see it as a people-friendly step?
There will be some short term pain for the steps taken. Hence we should have a right long-term framework which will include appropriate pricing of all products. But it must be done in phases. We should move to pricing wherever it seems rational and subsidize wherever the pain is and slowly remove the subsidy as per the bearability.
Our theme for this budget is `abki baar sapne sakaar`. There are a lot of expectations. Do you think its the right belief?
Everything will not be solved at one go. People are hoping to see the continuity of a pro growth pro-development message. Maintaining fiscal prudence will be another thing will people will hope to see in the budget.
You mentioned about bitter pills. Can you pin-point 2-3 problem areas at this point and time?
The problems that we have today is too much subsidization of a few natural resources. Electricity, petrol and gas are not is viably priced. We should be prepared for tax changes.
There are lot of concerns on rate reversal. When will rates comes down?
We have to look at the impact of the interest rates. It impacts inflation, it also impacts investment attractiveness. Feeding inflation has been from supply side. To fix that supply side you have to reduce subsidies for which you have to increase some prices. That is a move in the right direction, which will help interest rates to come down. RBI will have to look at fiscal prudence, monsoon and other external factors.
Do you think interest rates will reverse in this financial year?
I don`t want to give any timeline for this.
The second concern for banking industry is on the asset quality. Can it save some part of the pain as far as asset quality is concerned?
The factors that are causing stress on the books of banks assets are stalled projects, growth and high interest rates, part of payment cycle getting stuck, rupee shock in some specific sectors. In the stalled projects we are seeing progress but in growth and interest rates we haven`t seen much impact. They will get better as economy gets better.
Can we expect banks to come out with attractive products? You may look at some categories in auto or housing? Do you see any opportunity being created in 6-8 months down the line?
From a long term growth and stability perspective it is important that products are priced. We have to be able to recover our interest cost, operating cost and credit cost. So till the interest cost does not come down, credit environment will not change. We can`t cut the lending cost too much. Axis Bank always had products that are reasonably priced and therefore we have been able to deliver higher than industry growth rate.
For this financial year and next what could be the reasonable estimate for growth?
Last year we clocked growth at less than 5 percent. This year if we are able deliver growth between 5-5.5 percent then it will be a good progress for a country like ours. We are aspiring that next year we get to close to 7 percent and going ahead we move to 8 percent.
What sense are you getting from global investors?
The faith is now slowly returning. The faith is based on factors that we are going to follow a pro-development policy, that we are going to take away some of the difficult policies of doing business, that we are going to take away some of the uncertainty, making India a more attractive destination.
As far as stock markets are concerned, do you think the optimism is rightly placed?
Clearly I think that India has a long-term growth story. We had created some bottlenecks for ourselves, if those bottlenecks are removed then faith in the Indian markets will be regained. Valuations are better if you look at PE to growth. There is headroom for doing even better.
At Axis Bank how are you positioning yourself in the next 3-4 years? Are you also looking at inorganic growth in any of the verticals?
There are lot of opportunities in a country like ours. We have many reason to compete and do well. We don`t want to get into all the space that we have in the market. We want to be able to serve our key customer bases. We have acquired Enam franchise which we felt was gap in our franchise. We are continuing to invest in technology and people. We are very well positioned in our growth prospects.