RBI-govt tussle: Paper leakage caused panic, says Subramaniam

RBI-government tussle is not a new thing. Leakage of papers caused unnecessary panic, Sunil Subramaniam, 66441979 66441007 66431356 MD & CEO, Sundaram Mutual, tells ET Now.Edited excerpts:The market participants seem to have shrugged off RBI-government tussle. We saw the first signs of it on Monday when the markets actually rose and even today the Sensex and Nifty ended 550 points and 188 points up, respectively. Historically, there has always been conflict between the RBI and government. But it is always done behind closed doors. This time, leakage of some letters caused this unnecessary panic, But I do not think fundamentally there is a problem with the government expressing to the RBI what they would like to understand from RBI’s action. The last few policies of RBI like the rate hikes have been surprising the market. One quarter they were expecting and it did not happen; another quarter they were not expecting and it happened. I think the government is seeking clarifications on that. Second, the government is concerned more about growth rather than inflation. The Reserve Bank traditionally has always had a greater focus on inflation over growth. The banking sector crisis was partly driven or enhanced by the RBI’s NPA tougher norms coming into play and thereby drying up lending. Lending is the key for government. The government’s questions were around that, asking how much further they were going to be tightened. That is a healthy debate which should have been going on at the backend and some leakage led to this kind of panic situation as if the government is going to interfere in RBI. The government has clarified that they do not intend to interfere with the autonomy of the RBI and that is very healthy news. You are positive on retail banks but it is the PSU banks which are a bit of a concern in your view. Why are you only preferring retail lenders with a private background and not PSUs? The reason is that PSUs generally have not been very strong in their retail lending segment. While they have a retail deposit base on the lending side, they have been more focussed on corporate lending. That is one reason. The second aspect is the NPA situation. The provisions they are creating has resulted in the fact that though they have liquidity, there has been a freeze on fresh lending. The third aspect is the RBI putting 12 banks on the monitoring programme. That has also slowed down decision making. Fourth and probably most important, mergers within the public sector banks are an inevitable course. We have been saying that for quite some time and the one that has happened is not the last one. So in buying up bank stock, today we are not yet clear whether it will end up merged. So if you buy a better quality bank, it might turn worse after merger with a poorer bank. If you buy a poor quality bank, you might end up with a better portfolio because it will get merged. Till the uncertainty is there, it is better to stay away and see how the whole process turns out.On the other hand, retail lenders from the private banking space set up the proper risk management procedures to manage retail very, very early. They understand retail banking and it is not just the banks, even private sector NBFCs are far better managed because their systems and processes on approving a loan, is on a book base. Public sector banks still have a man-to-man personal relationship and that is why they are more into corporate lending. But for lending retail to a large number of people, you need to have proper systems, parameters, big data crunching to see the propensity for defaults. That’s why the systems and process of retail private banks are far better than that of public sector banks in entering such a wide space. That is the reason why consumption is going to be a big driver. Retail lending has to support it and it is the private banks and the retail NBFCs which are going to continue to enjoy a major market share in that space.

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