Trust deficit, slowdown adding to banking woes: Jaspal Bindra

There is a need to address the increasing trust deficit between lenders and borrowers amid a significant slowdown through policy measures and transparency, said Jaspal Bindra, chairman, Centrum group. In an interview to Saikat Das, he said that while bank recapitalisation, announced last week, will provide a significant impetus to credit growth, the benchmarking of loans to the repo rate augurs well for domestic demand, especially in the housing and auto sectors. Edited excerpts:How do you see the economy today?There is a significant slowdown in the economy. This is largely because the sentiment amongst the stakeholders is weak. Additionally, there is an increasing trust deficit between the banks and borrowers. I think the combined effect of the slowdown and trust deficit is what is making the problem bigger.What should be done to address the issue of trust deficit?There are several factors that need to be taken into consideration. The first area is addressing equity markets. Sebi and the government need to take steps to bolster confidence. On the debt financing side, addressing corporate governance is a challenge. PSU (public sector unit) banks are under constant scrutiny and hence are unwilling to take exposures if there is even a minimal doubt. They find it easier not to lend rather than face repercussions later. Also, mutual funds are in a bit of a dilemma, as they too have suffered hits. Across sectors, confidence will have to be built through policy measures and transparency.How do you view the measures announced by the finance minister last week to improve the situation?Till recently, there was an impression that the government was in denial about a slowdown. The good thing is that now at least both the RBI and the government have clearly acknowledged that a problem exists.They have been meeting with industry CEOs to work out ways to improve the situation. The FM announced several measures to revive growth last Friday. Bank recapitalisation will provide a significant impetus to credit growth.Benchmarking of loans to the repo rate augurs well for domestic demand, especially in the housing and auto sectors. The removal of surcharge on FPIs should bring back the recently pulled out investments.What is your assessment of economic growth?I think there is definitely a slowdown, and there’s no denying that. You see any sector, you will find a slowdown. The more obvious ones being auto, BFSI.... Jobs are bound to be cut as demand has reduced. Companies are unable to maintain existing production capacity, let alone add capacity.In any economy, there will be a problem of readjustment, where a sector may go through a cyclical downturn. The problem now is that many sectors are going through it together.It is not just restricted to consumption. There is no additional investment, with limited available credit. So, it is a concentration effect.Do you see signs of a revival by the end of this financial year?Unfortunately, we are in a stage where the situation is bad. Fortunately, we can only go up from here. How quickly the FM’s latest measures take effect on the ground will be closely watched. We should see some traction on the ground in the next three-six months. By the end of the financial year we should be in a better place.What bold steps can the government take to improve growth?To reinvigorate the growth cycle, we have to improve credit flow in the market. The FM has addressed this point through the bank recapitalisation proposal. Second, labour law reforms have been talked about for a while and will surely help, especially in this volatile environment.Third, India has so much room to accommodate foreign capital. Incentivising foreign capital is strongly needed if the government has to maintain fiscal discipline amid limited domestic capital available for investment.What is your view on the proposed foreign bond sales by the government?Several countries have issued offshore bonds. Since the Indian rupee is not fully convertible, there are some pros and cons. Cost is definitely a pro, because you can raise cheap capital and Indian paper is scarce.The cons are of course that if ever our reserves were to be weaker than they are today, having any dollar liability on the government’s balance sheet puts pressure on the currency and currency management becomes challenging.The real estate sector is under a lot of stress. What would be a cure-all?Commercial real estate is doing better. However, the residential sector, particularly high-value projects, are struggling. The easiest cure is for sales to revive. Slow economic growth and weak sentiment are resulting in a lack of confidence amongst homebuyers.Possibly some combination of structural price correction, lower mortgage rates and better economic prospects will help. Besides, HNIs (high net worth individuals) were traditionally large investors in residential real estate, and are now no longer so. They too need an incentive to return.

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