Initially most loans will be in local currency: KV Kamath,New Development Bank
How is life since you joined BRICS bank?
— Well it has been fun living in Shanghai. It is a nice place, a lot to learn. A lot of changes have happened there which can be internalised into any growing city and that has been very interesting.
I am catching you at the IMF conference, days before actually the BRIC conference back home in India begins. What can we expect?
— BRICS is a great example of countries of the south coming together and I am sure during the conclave, that agenda will be pushed further. What are the areas that we could cooperate on and there are whole lot of new areas coming up. I think for one, there is tremendous interest in business in terms of countries that encompass these five nations and I am sure that will be pushed forward.
The term BRICS was, of course, coined by Goldman Sachs. When you do this regional cooperation of the emerging markets, are you looking to induct any new members?
— Well not just yet. I think this a matter that our board of governors will decide on. They have had preliminary discussions but final decision on new members is awaited.
You mean there are some candidates that are being deliberated on?
— No. There are no candidates being deliberated on. I think they have indicated what we could be open to the area of new membership but we need to understand how to go about it so that will take time.
Can you share with us which ones there could be, which parts of the world?
— It is too early to speculate because as I said this is entirely a matter for the board of governors. Nations themselves will have to decide on it.
Since you moved to BRICS Bank, can you share with us some of the big achievements, some of the big measures that you may have achieved?
— What we said very early on was that we will listen very carefully to all member countries and be responsive to their needs and do things at speed and I for myself set a target that in the first year after laying the basic foundation, getting the policies right, we should actually get the lending book going and in that context, we looked at green projects. So in the first year. we have done five green projects just under billion dollars in each of our member countries.
We also said that we would raise money, so we raised renminbi bond issue. This is part of a programme where we will raise about a billion and a half in renminbi. I would say the first ranch of around 450 million has been raised at very attractive rates. It is a green bond again which means that we will lend for green purposes and thirdly we are now planning bond issues in our member countries. India, of course, will be very strong candidate where we would seek to raise money and slowly in other countries.
Interestingly, a year back, countries were keen to borrow hard currency but at the same time we were very keen that the way to go is local currency because local currency gives you the comfort of shielding you from exchange fluctuations because the cost of borrowing in hard currency including exchange rate depreciation that takes place is really in the teens. It is 12% to 13-14% whereas you borrow in your local currency, it is at a much more decent rate. Countries are accepting that and probably that is way we will go initially.
Going forward, you have done all this fundraising for green power and green energy. What are the other focus areas?
— Our key focus is sustainable development. Within that, whatever comes in we will be doing but it has to be in the sustainable context in any area of infrastructure.
You have been such a keen observer of the Indian economy. How do you think the Indian economy is performing here at IMF and World Bank? It certainly seems that these two multilateral agencies are looking at India as a beacon of hope while global growth has been stagnating.
— I would think that India is a clearly the shining star in what is otherwise a spottish performance in most of the countries. My own confidence in India at this point in time, given certain developments, has gone up.The passage of the GST Bill is something very fundamental. Similarly, I would think the government’s attempt to widen the tax net and the collections is tremendously laudable and we will go a long way in a) bringing in discipline and b) increasing the government’s ability to raise resources and hence break the deficit. Thirdly that curious thing in India is that we wait for the monsoon with such great hope and this time that hope is even fulfilled. All these three together should give us a push in terms of growth in the coming year which is well needed.
You are now part of the BRICS. I want to get your views on this since India is growing in stature. It is trying for a permanent spot in the security council. Do you think it is time India starts trying to get more weightage at the IMF, and better representation at the World Bank?
— I am sure this is something that the country will work on and I would think that the political leadership has to decide on this but in an economic context, certainly India is being looked up to in a very respectful manner.
Mr Deepak Parekh once said impatience is creeping in. He himself is saying things are changing on ground. what is his sense you get and I ask you this because you deal with some of the largest and the richest of funds. Is there renewed fervour in the last four months?
— I would think that in the last two months there clearly is a renewed fervour particularly after the passage of the GST Bill and the momentum seems to have changed because I see a lot of interest from say large Chinese companies to come to India. That could be a fillip that is needed for our manufacturing side and for the infrastructure side. So I think interesting things are to be seen going forward.
The only blind spot in this burgeoning economy seems to be banks and the problem of the NPAs. What would you suggest to the finance minister, to the RBI to take care of this problem?
— I will put it this way. I was keenly looking at the monetary policy statement this time. Two things really strike me; one is the continuing exercise of cutting interest rates and b) this announcement by the Reserve Bank that for certain categories of loans under stress, they will look at the sustainable debt portion as performing and only the unsustainable debt as NPAs.
This I think is a fundamental move and should have been done long back. The reason I am saying this is very simply we are looking at a country where all these assets can be reinvested. Only if there are no assets, then you need to take a write off. So putting back sustainable debt into performing status, is the right way to go for developing a nation and India has done that.
I would complement the Reserve Bank on this step. Along with a rate cut what that does is in a way the mark to market gains of the banks become a cushion in terms of their own tier-1 ratios. So these two steps I think move the needle in terms of putting back banks on a keel a big way. So I complement the Reserve Bank and I think this with a little bit more of clean up should get the banking industry fully floating.
We still have not seen that rate cut being transmitted. What the Reserve Bank has said in the monetary policy, is that a way of writing off the NPAs?
— It is not writing off, it says that let us say one-third of the debt is not serviceable that is an NPA or you provision for it or write it off. But the rest of it which is serviceable is performing. I think in a developing country status this is very important and that is why I salute what they have done. In terms of interest rate, the transmission effect takes time, particularly when banks have been under stress.So they are hesitant to pass on the benefit but at the same time, there is a benefit in terms of all the government securities that they hold because on that they will have a mark to market positive which goes to their reserves. So I am very hopeful that banks are coming around.