IFR Asia – June 30, 2018

Upfront

OPINION INTERNATIONAL FINANCING REVIEW ASIA

Market monsoons

T

he start of the monsoon season is a tough time
to be in India, as delegates to last week’s Asian
Infrastructure Investment Bank meetings discovered
lRST
HANDû!SûWITHûTHEûWEATHER û)NDIASûCAPITALûMARKETSûMAYû
BEûABOUTûTOûGETûWORSEûBEFOREûTHEYûGETûBETTER
!LREADYûBUFFETEDûBYûTHEûGLOBALûRETREATûFROMûEMERGINGû
markets, India is facing additional headwinds from a
rising oil import bill, looming elections and a constrained
BANKINGûSECTORû3OûFAR ûFAST
GROWINGûMUTUALûFUNDSûANDûNON
BANKûlNANCEûCOMPANIESûHAVEûBEENûABLEûTOûOFFERûSHELTER û
PROPPINGûUPûHIGHûEQUITYûVALUATIONSûANDûLENDINGûTOûMID
CAPû
BORROWERS ûBUTûLIQUIDITYûISûWEARINGûTHIN
-ANYûINû-UMBAIûWARNûOFûAûSTORMYûSIXûMONTHSûAHEAD
Bad debt in the banking sector is a particular cause for
CONCERNû%LEVENûOFûTHEûûPUBLIC
SECTORûBANKSûAREûEITHERû
BARREDûFROMûLENDINGûORûUNDERûREGULATORYûSUPERVISIONû

,OSSESûINûTHEûSTATEûBANKSûHAVEûALREADYûBURNEDûTHROUGHûTHEû
53BNûTHEûGOVERNMENTûSETûASIDEûFORûRECAPITALISATIONûTHISû
YEAR ûANDûPRIVATEûSECTORûBANKSûAREûNOWûATTRACTINGûSCRUTINY û
TOO
!SûAûRESULT ûRISKûAPPETITEûHASûEVAPORATEDû,OANûOFlCERSû
HAVEûRETREATEDûTOûTHEûSAFETYûOFûLARGE
CAPûCLIENTS ûSQUEEZINGû
SUPPLYûCHAINûlNANCINGûANDûTHREATENINGûTOûCURTAILûTHEû
INVESTMENTûCYCLE
!ûBPûJUMPûINû
YEARûGOVERNMENTûYIELDSûHASûALSOû
TAKENûBANKSûANDûMANYûMAJORûINVESTORSûOUTûOFûTHEûBONDû
market, shutting off an obvious alternative for growing
COMPANIESû%QUITYûCAPITALûRAISINGûHASûALSOûSTALLED ûAFTERû
a retreat of overseas investors left local institutions –
ESPECIALLYûMUTUALûFUNDSûnûWITHûTOOûMUCHûPRICINGûPOWER
Further stresses could come from a ruthless RBI, which
HASûSHOWNûITSELFûWILLINGûTOûCOMBATûINmATIONûANDûSUPPORTû

THEûCURRENCYûDESPITEûTHEûRISKûTOûECONOMICûACTIVITYû4HEREû

AREûEARLYûSIGNSûOFûAûDETERIORATIONûINûCONSUMERûCREDITûQUALITYû

ANDûTHEREûISûALWAYSûAûRISKûTOûCONSUMPTIONûIFûITûDOESNTûRAINû

ENOUGHû!NDûHOWûMUCHûOFûLASTûYEARSûDELUGEûOFûFUNDûINmOWSû

WASûDRIVENûBYûDEMONETISATIONûRATHERûTHANûLONG

TERMû

investment?

4HEûBULLSûANDûTHEREûAREûSTILLûMANY ûPOINTûTOûLONG

TERMû

gains from the introduction of a nationwide goods and

SERVICEûTAXûTHEûIMPROVEDûRESOLUTIONûOFûBADûDEBTSûTHROUGHû

ANûACCELERATEDûBANKRUPTCYûPROCESSûANDû)NDIASûOBVIOUSû

DEMOGRAPHICûDIVIDEND

Now that it has begun, the shift from name lending to

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AûMOREûEFlCIENTûlNANCIALûSYSTEMûANDûAûMOREûPRODUCTIVEû

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FURTHERûDAMAGEûTOûTHEûRUPEEûBYûCOMMITTINGûTOûITSûBORROWINGû

PLANS

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SERVICESûOFFERûIMPORTANTûEFlCIENCYûGAINSû4HEûLIBERALISATIONû

of foreign investment limits in rupee bonds and a

broadening of overseas borrowing rules will bring more

MONEYûINTOûTHEûSYSTEMû!SSETûRECONSTRUCTIONûCOMPANIESû

a bad bank or even privatisation could also speed up

RESOLUTIONûOFûTHEûBADûDEBTûISSUE

!NDûAûSLOWDOWNûINûPUBLICûEQUITYûISSUANCEûDOESûNOTû

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RUSHûTOû)0/

4HEûGROWTHûOFûINSTITUTIONALûINVESTMENTûALSOûHASûLEGSû

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INTOûEQUITY

FOCUSEDûMUTUALûFUNDSûANDûTHEREûISûPLENTYûOFû

room to increase insurance and pension fund assets from

THEûCURRENTûûOFû'$0ûVERSUSûOVERûûINû-ALAYSIAûFORû

INSTANCE    

To broaden funding options and attract more investment,

THEûSECURITIESûREGULATORûHASûEVENûmOATEDûTHEûIDEAûOFûALLOWINGû

)NDIANûCOMPANIESûTOûLISTûOVERSEASûDIRECTLY

)NDIASûLONG

TERMûCONSUMPTIONûSTORYûANDûAû

PLUSû

GROWTHûRATEûAREûSTILLûHARDûFORûINVESTORSûTOûRESISTû"UTûTHEû

UNCERTAINTIESûOVERûTHEûNEXTûSIXûTOûûMONTHSûCANNOTûBEû

IGNOREDûEITHERû%XPECTûAûSTORMYûRIDE

The shift from name lending to

CASHmOWûANDûCREDITûASSESSMENTSû

WILLûEVENTUALLYûLEADûTOûAûMOREû

EFlCIENTûlNANCIALûSYSTEMûANDûAû

MOREûPRODUCTIVEûECONOMY