Narayan SA, President-Commercial Banking, at Kotak Mahindra Bank, believes the government’s decision to increase minimum support price (MSP) of crops is good news for rural India, and it would give a push to rural demand. Narayan, who oversees agri business, tractor and commercial vehicles/construction equipment finance, and emerging corporate group businesses of the bank, shared his views with BusinessLine on a slew of issues. Excerpts:
Does the new minimum support price (MSP) of at least one-and-a-half times the cost of production for all rabi and kharif crops augur well for the rural economy? Will it be inflationary?
The decision to increase MSP to at least one-and-a-half times the cost of production is a welcome move. It augurs well for rural India, making more money available to farmers. This, in turn, will help boost rural demand. Higher MSP will push up the cost and may have a modest impact on inflation. The extent of impact depends on the formula that the government will use to determine the MSP.
Outstanding non-food bank credit stands at ₹82.11 lakh crore and food credit at ₹52,300 crore as on February 2. Do you expect this trend to continue in the next financial year?
With the stabilisation of GST, we expect uptake of credit in FY 2018-19. We have witnessed credit upswing in the services sector and anticipate demand to come from the manufacturing sector on the back of expected nominal GDP growth of 11-12 per cent.
Commodity prices have become volatile much like the financial markets. Where is the commodities market headed?
Agri-commodity prices have been volatile during 2017-18, with volatility ranging from 10-30 per cent, which made it challenging for agri-processors and traders to manage their business. We expect agri-commodity prices to be less volatile in FY 2018-19. Of course, my view is based on the expectation of a reasonably good monsoon.
Growth of commercial vehicles touched an eight-year high in December 2017. Has the tide finally turned positive for the CV market?
We have witnessed a good year-on-year growth in the commercial vehicles segment from December 2017 to March 2018. At Kotak, our disbursements in the sector have increased significantly this year, and our share of the pie has grown in the heavy, medium and light commercial vehicle sectors. Currently, there are about 7 million commercial vehicles on the road, and replacement demand itself contributes substantially to fresh demand every year. Besides, the government’s focus on infrastructure and better connectivity will create additional demand for vehicles.
We expect the sector to grow at 10 per cent next year as well. At Kotak, we are confident of increasing our share by growing more than the market. We have been in the CV segment for long, and so, have built up deep relationships in this business and sound ground-level knowledge. Post-2011-12, we reduced our disbursement, since we believed that things may not pan out well. But in the last two years, we have gone in aggressively into the segment.
What are your views on the Agri-Market Infrastructure Fund with a corpus of ₹2,000 crore? Will it help bring about a structural reform in agriculture markets?
The Agri-Market Infrastructure Fund is a good concept, and will link about 22,000 rural markets to the electronic national agricultural market platform. It will enhance efficiency and ensure better remuneration for farmers. It will, over a period, bring about a structural reform in the markets. The efficiencies following the linkage will eventually result in lowering the inflation.
However, there are issues even now affecting the farmers. There are various reasons for that, such as the number of agri-commodities being so large in India, making it difficult to manage; then there is standardisation, which is a challenge. But we believe that over the next three-five years, these issues should get sorted out. We should give credit to the government for this effort.
Post-demonetisation, the SME sector was the worst hit. Are you seeing a revival in this sector? How will it shape up in the next 12-18 months? Has GST impacted lending to SMEs? Has there been any change in the borrowing pattern? What does your SME book look like? How much growth are you expecting this financial year?
Post-demonetisation and the introduction of GST, the SME sector was impacted the most. There were teething issues immediately after the GST was rolled out, but these are now easing out. We witnessed some stress during 2017-18 in the SME books, which is now showing signs of stabilisation.
Now that GST is on the stabilisation track, the SME industry is transitioning towards the formal and organised sector. We are now seeing the formal SME gaining market share and investing for growth, resulting in demand for additional financing. We are already seeing some of the State-level SME players transforming into regional/national players after GST.
We are looking forward to a robust growth of our SME book during 2018-19. This year we are bullish because all disruptions [positive though] are over. Also, from the lending point of bank, we as a bank, are able to get better information, thanks to initiatives such as GST. We expect to grow above the nominal GDP number of 11-12 per cent. However, resolution of the NPAs need to be speeded up.
At the urban retail banking side, digital banking has captured everyone’s attention — both players and consumers. Are you using digital platform for your SME and agri clients?
Digital has become an important channel in staying connected with customers and offering seamless and quick services. We work with our SME clients on a continuous basis to offer innovative and digital products and value-added offerings. We have introduced cash management system, online banking and online uploading of data, to make the banking experience more enriching and also to improve the efficiency of our clients. Recently, we rolled out the Kotak GST platform, which facilitates them to file quarterly and annual returns and get consolidated reports.
The MFI sector has seen consolidation in the last couple of years, and with the growing interest of banks in it, do you see a significant change emerging in the sector? Kotak Mahindra Bank acquired BSS Micro Finance about 18 months back. Could you share with us your post-acquisition experience?
Microfinance institutions [MFIs] have seen consolidation in the last few months. Many of the mid-sized MFIs have become small finance banks, and some of them have been taken over by existing commercial private banks. The good part of microfinance lending is it makes both commercial and social sense. It helps the overall social cause of the country by making finance available to the lower strata of society.
We acquired BSS Microfinance Private Limited last year, and its financial closure took place in September 2017. Our experience so far has been good.
Our BSS-sourced microfinance book has grown by 50 per cent this year, and is expected to further grow by 50 per cent in FY 2018-19. We are also looking at expanding BSS’ footprint, which has so far been present in Karnataka and parts of Maharashtra, by setting up offices in other States, including Madhya Pradesh and Tamil Nadu.