Rajeev Pant, regional chief executive and head of wholesale for South Asia and Mumbai branch, NBAD
Tax reforms, booming foreign investment and a more dynamic banking sector will all help India’s economy expand at a faster rate, the head of National Bank of Abu Dhabi’s Mumbai branch is predicting. India’s economy grew by 7.6 per cent in 2015, a five-year high, making NBAD’s entry into the world’s seventh largest economy all the more auspicious. The bank launched operations in Mumbai in November 2015 to provide wholesale banking services, project finance, trade finance and asset finance, and the same month bought the offshore Indian corporate loan book of Royal Bank of Scotland for $900 million.
“Imminent salary hikes for over 10 million government employees and a good monsoon—the agriculture sector is India’s largest employer—are expected to drive consumption in the months ahead,” says Rajeev Pant, NBAD’s regional chief executive and head of wholesale for South Asia and its Mumbai branch. “We’ve been doing business with some of India’s best-known companies, including some of the large diversified business houses, as well as a host of manufacturers.” Pant predicts India’s economy can exceed its current growth rate, pointing to commitments by the government and central bank to restructure the country’s banking system and push publicly-owned banks to tackle their stressed balance sheets.
Another positive development Pant cites is the imminent introduction of the long-awaited Goods and Services Tax, which is due to come into force in April 2017 and which NBAD’s India chief hopes will boost economic growth by about 2 per cent. “Taken together, these factors make for a strong foundation for India’s economic prospects for the next few years,” says Pant. The GST will replace almost all indirect taxes levied by the states and central government. Currently, India has multiple indirect taxes such as value added tax, entry tax and purchase tax. The GST will widen the tax base and simplify the system, Ernst & Young notes, adding businesses will benefit from better cash flows and tax savings.
Also, in 2015 India overtook China as the world’s top destination for foreign direct investment, while India and the United Arab Emirates have agreed to create a $75 billion infrastructure fund that will funnel UAE institutional investments in major projects such as for road, rail, ports and airports. “Our customers also tend to have strong links to our home market, which is very much in line with NBAD’s West-East corridor strategy of focusing on a significant trading region that stretches from West Africa to East Asia,” says Pant ahead of NBAD’s agreed merger with Abu Dhabi-rival First Gulf Bank. This deal is due to be completed in early 2017 and will create the biggest bank in the Middle East and North Africa, with approximately $175 billion of assets.
“Domestically, corporates across India have been encouraged by the policy progress made in recent months, with the introduction of a much-needed new bankruptcy law and more recent ratification of the GST,” says Pant. “These reforms will have a marked impact on the ease of doing business in India and also bring with them a new benchmark for transparency.”
Pant predicts the GST could lower the cost of capital goods by up to 14 per cent, which will bolster Indian manufacturers’ competitiveness. “As long as we now see a smooth and swift implementation of these reforms, accompanied by clear and stable monetary policy, confidence among companies will continue to grow,” he says.
Pant acknowledges India’s banking sector, whose assets totalled $1.8 trillion in 2014 according to official figures, has suffered in recent years as the economy went through a slowdown from 2011 to 2014 before last year’s resurgence. In India, there are 26 public sector banks, 20 private sector banks, 43 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks. “With India witnessing much stronger growth, there’s a view forming that some domestic banks are hesitant to sell their distressed assets at a knockdown price at a time when an expected uptick in domestic consumption may further boost the economy, and therefore valuations,” he says. “India’s public sector banks will continue to face some pain in the near term as they clean up their balance sheets. But there is also significant opportunity in the sector: The Reserve Bank of India is opening the doors to a host of new entrants, which will allow for a more bespoke and competitive banking landscape.”
Licences have been awarded to new types of banks, including payment banks, which handle bills and small deposits but are not allowed to lend, and small-finance banks. “India’s traditional banking sector will need to demonstrate that it can become nimble and embrace technology, which is upending the bricks and mortar model for delivering financial services,” says Pant. “Today, with just one branch in India, NBAD is able to serve its wholesale customers across the country with the use of online payment clearance platforms.”
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