TPG Capital, one of the world’s leading private equity firms with over $70 billion of capital under management, is bullish on India as it sees a dramatic change after the Narendra Modi government took over. On the sidelines of TPG's first Investor Conference in India, Bloomberg TV India caught up with the firm’s Country Head and MD Puneet Bhatia.

What are to most serious issues that are plaguing the Indian economy?

The most serious issues that have plagued the Indian economy have been the inherent cyclicality. If you see the score card on India two years back, things would look dramatically different. And the cyclicality is actually caused by a number of things — some are domestic and some are actually foreign and imported into India. But the stock markets have rallied over the back of the promise held by the Modi government.

We have started to see some uptick in the urban consumption and there are pockets of the demand emerging now, which has spurred the stock markets and the investor interest.

So private equity as an intra industry is about 20 years old in India and depending on how you were to judge it at various points of evolution of the industry here, you’ll find the points in the scorecard and the verdicts have actually been very different. At this stage, you will find that markets are obviously healthier and in a better state than they were a couple of years back. And notwithstanding the currency impact that is reflecting on the portfolio of most investors in India, you know the scorecard now is turning out to be fairly positive.

So last year turned out to be a record year for private equity — $20 billion have been injected into the Indian private equity market, which is a record high and substantially higher than the previous peak of 2007. That to me is a very telling and a very tangible stance taken by the private equity industry.

And once you see this level of activity…obviously the older vintage investments that are now seeking exit are finding interest on the part of the new capital that are coming into the country.

This is improving the broad track record of returns in this country. So if this trend sustains for the next couple of years, I think India should rank as one of the top quarter returns in the emerging market, if not higher.

One of the worries among investors is the pile of NPAs in the banking industry. Given your experience in the industry, especially in NBFCs like Shriram Finance, what is your view on the NBFC space in India?

PE is really solution capital. We tend to be very agile and look for opportunities that may have been created on the back of either dislocations or in terms of growth opportunities that are rising. So, to us, the 20-year theme that we played in India over the last many years through our investments has actually been that NBFCs and some of the private banks — that today capture perhaps 30 per cent of the opportunity to lend to retail and to the unorganised sectors that have not been serviced well by the traditional banks — has actually represented one of the most compelling investment opportunities in the country. So if you look at it, the problems that some of the PSU banks are confronted with now are really confined to infrastructure projects which obviously have suffered from policy bottlenecks and maybe some industrial projects, which have some suffered from global cyclicality.

The NBFCs and the private banks have not provided huge exposure to these segments, which has meant that these NBFCs and private banks have continued to see strong growth in their asset books and their credit losses have been fairly contained, which has allowed them to generate high returns on equity. And if you look at it against a handful of sectors that have continued to generate outstanding returns for investors in India for the last 15 years, NBFCs and private banks are standing examples of this.

With the new payment bank licences, will there be more competition in the NBFC and micro-lending space?

To me these statistics were very stark. When we started our thematic investment strategy around investing in financial institutions in India, we realised that half of the population in the country does not have access to banking services.

And that’s where some of these players like Shriram and increasingly the microfinance players like Janalakshmi are very well-positioned.

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