Bad bank is a great initiative but can turn into an accounting gimmick unless foreign investors are brought in: K Balasubramanian, Citibank India

The government’s Atmanirbhar Bharat initiative can help increase the share of manufacturing to 25% of GDP by 2025, coming at a time when most global companies are evaluating their capital expenditure plans amidst US-China tensions, said K Balasubramanian, head of corporate banking group at Citibank India. This would provide a strong impetus to exports from India, foreign investment in the country, and job opportunities, he told ET in an interview. Balasubramanian also said that while the proposed bad bank is “a great initiative”, it will prove “an accounting gimmick” unless foreign investors are brought in. Edited excerpts:

What is your take on the government’s Atmanirbhar plan?

India’s Atmanirbhar programme is a great move to drive the manufacturing contribution to GDP to 25% by 2025. It is coming at an opportune time with most global companies evaluating their future capex plans with the developing situation between the US and China. This would provide a strong impetus to exports from India, besides FDI and job opportunities, already seen in the EMS (electronic manufacturing services) sector.

What role is Citi playing for it?

We have been actively engaged with our clients across the world, including the US, Korea, Taiwan, and Japan to attract investments into India. Over the past six months, we have done roadshows across Europe, the US and Asia, covering more than 250 global clients and had senior representatives from government departments talking to these global companies.

Why are Indian companies rushing to raise funds offshore?

With the surplus liquidity around the world and muted credit offtake, investors are chasing quality issuances, bringing down the credit spreads. Most deals continue to be priced at a very tight spread over secondaries. Several Indian corporates and financial institutions are locking long-term financing at attractive levels. We see this trend to continue in 2021 and it could be a record year for Indian foreign currency issuances.

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What could lower funding costs further?

Indian companies over the past few quarters are gearing up to the ESG (environmental, social and governance) space. Several corporate houses are drawing up their ESG strategies, which, over a period of time, would become an important factor for accessing capital markets.

Does it make sense to borrow offshore, ignoring the local market?

Companies with international operations and global businesses use different pools of capital and diversify their borrowing base. The structural surplus liquidity situation is a phenomenon across the world on account of easy monetary policy by most countries and large Covid-related support extended by governments across the world.

Can a company borrowing in rupees benefit from overseas funding?

We are also witnessing an interesting phenomenon in the market, where corporates can borrow long-term rupee debt from banks/mutual funds and swap it to US dollar at sub-Libor level, bringing down the effective cost much lower than a traditional dollar borrowing level.

Do you see signs of green shoots when it comes to company growth?

There is a massive liquidity overhang in the system with banks placing about Rs 6-7 trillion with the RBI. The organic capex growth is muted except for select companies taking advantage of the Atmanirbhar scheme.

Will credit growth pick up?

We believe the credit demand in the economy will return in FY2022. The Union budget is a big catalyst with the government outlaying large infrastructure spends. We expect FY2022 to be a robust year with strong corporate rebound and growth coming back. Certain sectors such as real estate, infrastructure and automobile are seeing good activity since opening up.

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Do you expect the proposed bad bank to make things better for the banking system?

Bad bank is a great initiative and much needed for the country, with most public sector banks carrying a high level of non-performing loans. This would free up capital for banks saddled with bad assets. It will be helpful for them to concentrate on regular good business. However, the true benefit of the bad bank would be achieved only by getting foreign/private sector money. Else, this would become an accounting gimmick.


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