In a chat with ET Now , Mythili Bhusnurmath, Consulting Editor, and Killol Pandya, Head-Fixed Income, Peerless Mutual Fund, discuss macro cues and how a slightly weaker currency on a continuing basis is not going to hurt our prospects given our domestic condition and the global environment . Edited excerpts
ET Now: I have noted that the currency is now making a dash for 67. It is still at 66.91. So I do not know whether it retraces from here but there is weakness coming in on the currency front. We will talk about that in a bit but first your opening view on the SBI merger with its subsidiaries. It has been the talk of the town for years now. Now, of course, it seems like this decision is moving towards reality.
Mythili Bhusnurmath: Frankly the merger is not going to solve anything at all. The savings of the State Bank in fact are so marginal that it is not even worth talking about. If it was such a great idea, then why did not State Bank of IndiaBSE 1.78 % continue with the merger because they had merged two of their associates banks in 2008 and 2010. They clearly did not see too much of a benefit from it and had opted not to merge any further. So now like a good public sector bank, you have been given your signal from the finance ministry. Since the chairman is appointed by the government, if the government wants the merger to take place, SBI will comply. It is duly doing what it has been asked "to do" and are merging the banks, along with Bharatiya Mahila Bank (BMB) which was always a bad idea to begin with. It was launched by the previous UPA government with an eye on elections. It made no difference whatsoever because when you lend to a borrower, you do not bother about the sex of the borrower. You are bothered about the viability of the project you are financing. So it was a bad idea to begin with.
It will continue to be a bad idea and merging with SBI will not make a difference. So frankly, I think this is one of the political moves that the government has made and like all good public sector banks they have take their orders "again from the finance ministry." I do not see any logic whatsoever for the merger.
Having said that, I am sympathising with public sector banks which have to act at the behest of the government. Let me move on to currency. I am as you know in the past have been very happy to see the currency depreciate because the value of the currency today does not reflect the macroeconomic fundamentals. We have seen our export performance do miserably for 17 months and the fact remains that it is from exports that jobs are going to be created. Most of our exports are in the labour intensive sectors and somehow the government and the Reserve Bank of India have not woken up to the need to create employment in this country. It's all very well to talk of growth but where are the jobs going to come from? Until such time as the Reserve Bank does not pay heed to the fact that an overvalued currency does not do anybody any good, I think we are going to see this kind of problem in the country of jobless growth. So I for one, I am very happy to see that the currency depreciate. ..
So in that context, we are not hurt too badly. Yes, you have encapsulated it well. Export-led growth needs to be put in place and weaker currency helps our exporters in spades. So yes, a slightly weaker currency on a continuing basis is not going to hurt our prospects given our domestic condition and the global environment which is currently in place. So a slightly more depreciated rupee will serve our purpose as well let me put it that way, so why not.
Mythili Bhusnurmath: In September, we have those huge FCNR B redemptions that are due. Normally in the past, we have seen that there is a fair amount of rollover; one cannot be sure this time, particularly if the Fed hikes its interest rates. Is the RBI adequately prepared to meet those kind of outflows and what are the kind .of defences it can build the rupee is depreciating because given our narrow forex markets , very often a slow slide becomes a deluge. So what are the defences the RBI can adopt to prevent that from becoming a deluge?
Killol Pandya: Firstly I think RBI is pretty conscious of these numbers whichwhich you have been speaking of regarding the FCNR repayment piece and the possibility of a Fed hike impeding an efficient or at least a cheap rollover. The government has gone on record to say that there are ample reserves that have been built up and I believe that it is possible for RBI to commit at least $15 billion, if not more, in the defence of the currency. Given the fact that the global if not more, in the defence of the currency. Given the fact that the global commodities environment is pretty weak, the import cover as it were is actually standing at record highs so that frees RBI's hand to commit that much more resource to defending the currency if it comes to that.
So I am not really perturbed with that notion that the currency will depreciate and the way you put it that it will turn into a deluge or a rout, I do not really see that coming to pass. So I am not so confident or I am not so worried that the rupee is headed for a headlong slide. I do believe that RBI has enough provisions to tackle the eventuality if and when it happens.
ET Now: I have noted that the currency is now making a dash for 67. It is still at 66.91. So I do not know whether it retraces from here but there is weakness coming in on the currency front. We will talk about that in a bit but first your opening view on the SBI merger with its subsidiaries. It has been the talk of the town for years now. Now, of course, it seems like this decision is moving towards reality.
Mythili Bhusnurmath: Frankly the merger is not going to solve anything at all. The savings of the State Bank in fact are so marginal that it is not even worth talking about. If it was such a great idea, then why did not State Bank of IndiaBSE 1.78 % continue with the merger because they had merged two of their associates banks in 2008 and 2010. They clearly did not see too much of a benefit from it and had opted not to merge any further. So now like a good public sector bank, you have been given your signal from the finance ministry. Since the chairman is appointed by the government, if the government wants the merger to take place, SBI will comply. It is duly doing what it has been asked "to do" and are merging the banks, along with Bharatiya Mahila Bank (BMB) which was always a bad idea to begin with. It was launched by the previous UPA government with an eye on elections. It made no difference whatsoever because when you lend to a borrower, you do not bother about the sex of the borrower. You are bothered about the viability of the project you are financing. So it was a bad idea to begin with.
It will continue to be a bad idea and merging with SBI will not make a difference. So frankly, I think this is one of the political moves that the government has made and like all good public sector banks they have take their orders "again from the finance ministry." I do not see any logic whatsoever for the merger.
Having said that, I am sympathising with public sector banks which have to act at the behest of the government. Let me move on to currency. I am as you know in the past have been very happy to see the currency depreciate because the value of the currency today does not reflect the macroeconomic fundamentals. We have seen our export performance do miserably for 17 months and the fact remains that it is from exports that jobs are going to be created. Most of our exports are in the labour intensive sectors and somehow the government and the Reserve Bank of India have not woken up to the need to create employment in this country. It's all very well to talk of growth but where are the jobs going to come from? Until such time as the Reserve Bank does not pay heed to the fact that an overvalued currency does not do anybody any good, I think we are going to see this kind of problem in the country of jobless growth. So I for one, I am very happy to see that the currency depreciate. ..
Mythili Bhusnurmath: Do you share my view that a weakening currency in our kind of situation is not bad news at all, in fact, it is pretty good news?
Killol Pandya: Yes I do pretty much agree with what you are saying in the context that given our current conditions, a slightly weaker currency is not hurting our prospects. When I was here on the last show, I had mentioned that the currency is expected to weaken somewhat but it would not be a drastic, not an all out slide. That has pretty much come to pass in the sense that we are dwindling down towards 67 and we will in all possibilities breach that and stay there for a while. But on the downside, it is not going to be a rout. I do not really subscribe to the perception that we will slide all the way back to 70 or say more and stay there. Having said that, as you were correctly mentioning, a weaker currency is not really hurting our prospects given the fact that there is a global ..global commodity slowdown pretty much in place. Crude oil has been inching up but it is comfortably below the projections which have been made by our budget estimates.
Killol Pandya: Yes I do pretty much agree with what you are saying in the context that given our current conditions, a slightly weaker currency is not hurting our prospects. When I was here on the last show, I had mentioned that the currency is expected to weaken somewhat but it would not be a drastic, not an all out slide. That has pretty much come to pass in the sense that we are dwindling down towards 67 and we will in all possibilities breach that and stay there for a while. But on the downside, it is not going to be a rout. I do not really subscribe to the perception that we will slide all the way back to 70 or say more and stay there. Having said that, as you were correctly mentioning, a weaker currency is not really hurting our prospects given the fact that there is a global ..global commodity slowdown pretty much in place. Crude oil has been inching up but it is comfortably below the projections which have been made by our budget estimates.
So in that context, we are not hurt too badly. Yes, you have encapsulated it well. Export-led growth needs to be put in place and weaker currency helps our exporters in spades. So yes, a slightly weaker currency on a continuing basis is not going to hurt our prospects given our domestic condition and the global environment which is currently in place. So a slightly more depreciated rupee will serve our purpose as well let me put it that way, so why not.
Mythili Bhusnurmath: In September, we have those huge FCNR B redemptions that are due. Normally in the past, we have seen that there is a fair amount of rollover; one cannot be sure this time, particularly if the Fed hikes its interest rates. Is the RBI adequately prepared to meet those kind of outflows and what are the kind .of defences it can build the rupee is depreciating because given our narrow forex markets , very often a slow slide becomes a deluge. So what are the defences the RBI can adopt to prevent that from becoming a deluge?
Killol Pandya: Firstly I think RBI is pretty conscious of these numbers whichwhich you have been speaking of regarding the FCNR repayment piece and the possibility of a Fed hike impeding an efficient or at least a cheap rollover. The government has gone on record to say that there are ample reserves that have been built up and I believe that it is possible for RBI to commit at least $15 billion, if not more, in the defence of the currency. Given the fact that the global if not more, in the defence of the currency. Given the fact that the global commodities environment is pretty weak, the import cover as it were is actually standing at record highs so that frees RBI's hand to commit that much more resource to defending the currency if it comes to that.
So I am not really perturbed with that notion that the currency will depreciate and the way you put it that it will turn into a deluge or a rout, I do not really see that coming to pass. So I am not so confident or I am not so worried that the rupee is headed for a headlong slide. I do believe that RBI has enough provisions to tackle the eventuality if and when it happens.
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