In an online chat on Monday, ICICI Bank Executive Director
V Vaidyanathan talked at length about the Union Budget, its impact on the banking industry as also its long term implications. Vaidyanathan is an alumnus of the Birla Institute of Technology and also a graduate and alumnus of the Harvard Business School
Here is the transcript:
Vaidyanathan says, 'Hi. Good Afternoon. Welcome to the session. Kindly note these are my personal opinions and do not represent the organisation's views. Vaidyanathan'
Shanki asked, Now that interest rates have hardened, volumes will obviously slow down.. So will the management of the bank spend more time in bettering customer service?
V. Vaidyanathan answers, at 2007-03-05 14:08:19Yes volumes.. i.e. Incremental retail disbursals for example, which was growing at 35-40 percent earlier will now probably grow by 20-25%. After all increased interest rates has made loans less affordable. What banks will now do is to introduce more structured loans, more customised loans. A number of loan offers will probably be done in a preapproved manner where the customer does not have to produce tedious documentation. Probably, tenors will get stretched in order to reduce EMIs and to make them more affordable.
madhva asked, Putting ESOP under the FBT is it helpful?
V. Vaidyanathan answers, Well, this was probably a surprise. But companies and executives are hopeful that when the final norms and percentages are prescribed, they will be more benign than it sounds right now.
ram asked, Hello sir, do you feel that FM has taken enough steps to curb inflation?
V. Vaidyanathan answers, Indeed,inflation is a real issue facing India right now. Inflation has to be tackled on two fronts. The supply side and the demand side.As far as demand side is concerned, the RBI has taken a number of steps to increase interest rates to cool down demand. On the supply side, indeed, the government has reduced customs and taken other steps that you saw in the budget. We may have to wait for a few months to see the full impact.
deepak asked, hi sir, how r u??
V. Vaidyanathan answers, Great, Thank you.
Vaishali asked, Mr Vaidyanathan, will ICICI Bank raise home and car loan rates further? In your wisdom and long years of expertise, do you fell interest rates are fine now, or is there room for them to drop or rise further?
V. Vaidyanathan answers, I would say, there is an upward bias on interest rates even now. Though liquidity seems to have improved,the signals seem to point in the direction that there is an upward bias. Since the country ratings are high, and opportunity seem to be high, a lot of foreign capital in the form of remittances, FDI, FII and ECBs continue to come into India. The RBI often sterlises these. This infuses liquidity which the RBI tends to suck out through monetary tools like increasing CRR. All eyes should be on inflation. If inflation cools down, then the need to raise rates may come down. The next few months should give a clear pointer but for now, the bias is upward.
Vaishali asked, Mr Vaidyanathan, will ICICI Bank raise home and car loan rates further? In your wisdom and long years of expertise, do you fell interest rates are fine now, or is there room for them to drop or rise further?
V. Vaidyanathan answers, I would say, there is an upward bias on interest rates even now. Though liquidity seems to have improved,the signals seem to point in the direction that there is an upward bias. Since the country ratings are high, and opportunity seem to be high, a lot of foreign capital in the form of remittances, FDI, FII and ECBs continue to come into India. The RBI often sterlises these. This infuses liquidity which the RBI tends to suck out through monetary tools like increasing CRR. All eyes should be on inflation. If inflation cools down, then the need to raise rates may come down. The next few months should give a clear pointer but for now, the bias is upward.
vinu asked, Dear Mr Vaidyanathan, does not charging FBT on ESOP amount to double taxaation? The emplyee who gets ESOPs already pays hefty capital gains tax and then the company will also have to pay FBT. Will this lead to comapnies not giving ESOPs?
V. Vaidyanathan answers, I saw an interview of the FM recently. He has clearly argued that ESOP is a fringe benefit. Let's wait for the final percentages that would be applicable and hope for the best.
chatty asked, The free fall on the Stock Markets are they attributed t the Budget only ? If not what are the other factors and do you think markets have overreacted to the Budget ?
V. Vaidyanathan answers, The reasons why the Stock markets have been doing
well in the past few years are to do with increased optimism and better trading platforms. As far as the optimism is concerned, the constituents continue to be intact, (excellent demographics, de-licensed environment, unleashing entrepreneur energy, and the linkage benefits are intact). So in the end, India's growth story should prevail. The only thing to watch out for is interest rates and its effect on growth. However, the belief of most experts is that the story is very intact. Hence, we have reasons to be optimistic in the medium run.
prabhat asked, Dear Sir, do you think this Budget is good for banks? Especially private banks, like ICICI? If yes, in what way?
V. Vaidyanathan answers, To me what the Finance Minister said in the last 3 sentences reverberated with me for a long time. The Finance Minister's commented that he could not have spent on social security, on National Rural Employment, on small scale industry, if India's growth had not happened. To hear this from the Finance Minister is very reassuring- that they will do all it takes to keep growth going. Eventually the rising tide will lift all boats is the clear message. The policy measures are aimed at driving stable economic growth. By leaving key tax rates unchanged, the FM is sending strong signals of continuity and stability - good for long-term growth of India. The budget focusses on stimulating agricultural growth. It provides for significant support for farmers. For the banking system, the news of thrust on agriculture, and SSIs and SMEs is very good news. What's good for these vital sectors is good for banking.
shreepad asked, why doesn't government focus on growth? focussing lot on relating sectors. cess has been raised on education but nothing specific has been done for growth
V. Vaidyanathan answers, I would say, I have in a way responded to this in the previous question. The FM has left all key tax rates untouched. You may take this for granted, but isn't a stable and moderate tax structure good for the economy? He has ofcourse made it more inclusive by focussing on education and other social sectors. Assuming India continues to grow at 9% plus for the next many years and decades. A number of job opportunities will open up but without appropriate education, the job opportunities will just pass by next generation. Hence the entire focus on education represents a long term vision. This will ensure that people are indeed able to take advantage and participate in the growth opportunities that will come their way.
Shailesh asked, I have seen you a couple of times on TV. Did you study at Kendriya Vidyalaya Adampur? It seems we were classmates there...
V. Vaidyanathan answers, Hi Shailesh, Ofcourse I remember you.You were clearly the most brillant in the class. I was your only competition!
Shailesh asked, I have seen you a couple of times on TV. Did you study at Kendriya Vidyalaya Adampur? It seems we were classmates there...
V. Vaidyanathan answers, Hi Shailesh, Ofcourse I remember you.You were clearly the most brillant in the class. I was your only competition!
niraj asked, Dear Mr Vaidyanathan, what broad message did u think Mr. FM wants to give to the entire nation through this budget? Do you think he succeded in doing that?
V. Vaidyanathan answers, Stability of tax structures and inclusiveness. Both are good for the nation in the long run.
saket asked, Dear Mr Vaidyanathan,according to you, did the India growth story recieve a hammer from the FM in this budget.
V. Vaidyanathan answers, I dont think so at all. the basic concept of stable and moderate taxes continues.
Ashok asked, hi how this budget is going to affect the home loans given by banks
V. Vaidyanathan answers, Not very significantly. It will depend a lot more on the monetary policies, liquidity, interest rates and so on.
Indrani asked, Do you think this is a long term Budget? If so, why?
V. Vaidyanathan answers, Its good in the long run. Its stable and its inclusive. Of course I would say we need a lot more measures to reduce the parallel economy in India and that will make a significant difference to the reported GDP, reported per capita gdp. The FM made some very significant moves on this front in the earlier budgets. We will hopefilly see a lot more of this in the years to come.
V. Vaidyanathan says, Dear friends, I would like to leave for a meeting. Will you kindly excuse me. It was a pleasure interacting with you all. See you sometime. Best wishes to you all. I hope you participate in the growth story of this wonderful country with all vigour and energy. The fundamentals of India are well intact. Give it a go. Its our tryst with Destiny. We can make it happen. Best wishes, Vaidyanathan