‘There’s money offshore waiting to come to India. They want a reason to invest…the Budget hasn’t given them that reason’

Naina Lal Kidwai: The fact is,we also need our corporate sector to grow. We do not have a vibrant corporate bond market in India and it’s a very big issue. It’s not one that is resolved easily because there are many issuers,but the problem is more that we do not have enough investors,namely,insurance companies,pension funds,long-term investors. There are many structural weaknesses,particularly in terms of corporate bonds falling under different regulators that have just not been able to move this forward. It is important to recognise that backdrop because if you are a company wanting to raise debt,then the only recourse you have is to bank loans or ECBs. Now ECBs are the preserve really of the big corporates and I think it is a healthy aspect. At least they can go out and borrow at cheap rates. That does not crowd out the small guys here. So you don’t have the debt market and I think we don’t have a banking sector that is going as fast as the industry requires. It is just as well that we can allow our large corporates to go out and borrow and bring that money back in for investment here. So all in all,ECBs have a very important place.

SUBHOMOY BHATTACHARJEE: HSBC is a big player in the fee-based income market. But Indian banks hardly have any experience in it. Does that put them at a disadvantage?

Naina Lal Kidwai: There are many ways of earning fee-based income. This is certainly one. The ECB in itself requires the ability to distribute debt offshore or you have to have a balance sheet offshore to be able to provide it. Domestic banks by definition don’t play in that space. It’s just that if you don’t have a presence off-shore,how do you do it? It would mean building that presence—infrastructure,the regulatory issues of having a setup there. For example,we just raised the first Renminbi bond for IDBI Bank. Now,you have to have a strong presence in the Renminbi market,strong presence in China,in Hong Kong. It is not everybody’s cup of tea.

SHEKHAR GUPTA: How big was this issue?

Naina Lal Kidwai: Not very large. It was $150 million. But it was a first and I think it is important. Wherever pools of liquidity lie,you go and borrow.

SUBHOMOY BHATTACHARJEE: HSBC hasn’t been applying to RBI to set up branches. Is it because RBI has been sitting on those of others such as Citibank?

Naina Lal Kidwai: We have an appetite to grow in the country and we were waiting for some clarifications to come. In our case also,we have been in dialogue with RBI now for a long time on the Royal Bank of Scotland (RBS) acquisition,so we need to vet that down and see how the transfer of assets and deposits translates to us,whether we get any branches with it and then determine what our appetite is after that.

P VAIDYANATHAN IYER: After the Budget,a highly controversial issue has been the Vodafone case with certain retrospective amendments in the Finance Bill. What is the sense you get from global corporates? Do they still want to invest?

Naina Lal Kidwai: I think there’s concern across the board—and it is not just international industry,domestic industry as well—on the whole issue of retrospective legislation. I can only quote a Ficci interchange that happened. An Indian industrialist said,‘Look,I don’t care about it. I am not foreign,I am an Indian company and I only think about my investment here. Essentially,I feel you have taken away my right to appeal. You don’t like the fact that I have appealed and you believe what you believe is right and so,irrespective of what courts say,you just go back and ask me to pay. In which case,you are telling me why bother to appeal? I should just pay what you tell me.’ Now this was an Indian industrialist talking. So I don’t think it has anything to do with foreign or Indian,it has to do with the investment climate in the country. You don’t want to vitiate that and appear that you are in the interest of revenue collection,not allowing clarity to emerge.

Now the counter-argument raised by the finance ministry,which is valid,is that other countries have also gone for retrospective legislation and I think an example was raised of the UK in 2005-6. I would say it’s quite possible that there is legislation or regulation that is put out and suddenly there is confusion and so for two years,people are interpreting it in different directions. You,as a government,wake up to the fact that maybe there isn’t clarity and so you go in and clarify. But it is a bit difficult to understand why it should take you 30 years to clarify. To me,there has to be some equity and fairness in the way we work and the environment we demonstrate for industry and appearing to be pro-industry as well. So the concept of retrospective regulation is not good. I think there were some good moves in this Budget,including on transfer pricing where there are some clarifications that have been forthcoming because that is another very vexatious issue. So that’s really what industry wants—just lay all the tenets out for us,we then evaluate the decisions based on what’s there and that’s how we take our investment decisions. I think Indian industry just learnt to live with the chaos,but international industry cannot handle it. There are too many questions to answer.

COOMI KAPOOR: What would you say is the overall message of the Budget for the investment climate in this country?

Naina Lal Kidwai: It really doesn’t count what I say,I think the stock markets tell you something and they are going sideways to down. So that’s not great,although they also get dominated to some extent by movements offshore. So I look to the stock markets,I look to the investment climate. The gross capital formation,investment decision-making that comes from the back of this would be demonstrated in the next six months—these are all indications for the health of the economy and the way we are perceived in the investment space. The mood right now is maybe not as glum as we were making it out to be last year but it’s not as positive as it would have been. I believe there is a wall of money sitting offshore that is waiting to come to India. They want to invest,they want a reason to invest,we have to give them that reason and we haven’t been able to do that of the Budget. There are financial Bills that have seen some passage,the DTC Bill was finally presented in Parliament,that’s a step in the right direction. Some of them are very critical—the Banking Act,the Companies Bill,the Insurance Bill,Pensions Bill. The ones which I think are game-changers are DTC to some extent,because it brings about clarity,but the big game-changer is GST (Goods and Services Tax) because our estimates at HSBC Research say that it would add a good 1.5 percentage points to the GDP of the country because it plugs the leakage of revenues directly.

P VAIDYANATHAN IYER: What’s your take on the CAG report

on coal?

Naina Lal Kidwai: You cannot give credence to a leaked document. My view is that a document sees passage through many stages. You go share it with a view to getting inputs. It could be at the first stage of getting inputs. And just because it is under a CAG letterhead,which went to some officer somewhere,it’s leaked and given credence as if it is a report.

ANIL SASI: Unlike in 2008,when the problem was essentially limited to the financial sector,this time,a number of real-economy sectors are under stress. Does it translate into bigger worries for the financial sector,especially on account of the cascading impact on sectors such as banking?

Naina Lal Kidwai: In the post-crisis period,the financial sector worries were largely on account of exposure to the developed economies. The problems that some of the sectors are faced with at this point in time can be clearly defined. In the power sector,the problems are on two counts: fuel shortages and State Electricity Board losses. What we need is a strong distribution sector and we need to ensure power companies get the fuel supply they need. It is not easy. At one level,the coal supply lies with the government. If that coal resides under your forest or where a large number of people live,how far do you go? How do you resolve these issues? They are very real issues. I would say we have got domestic coal,let’s mine what we can sensibly. Let’s make sure the gains of it go to the people who should benefit from it,people in and around where it happens. If we can ensure it goes directly to them and of course,if we can import coal without it being too expensive,then that’s ideal. In the long run,a positive of that would be renewables. So we need to find immediate solutions for power companies so that they don’t go bankrupt.

SONALI SHARMA (student,The Indian School): Being a woman,was it difficult for you to establish command in the initial years of your career? If so,how did you overcome those problems?

Naina Lal Kidwai: I tried to enter an accounting firm where they didn’t have women at all. They said,‘You are eligible,but we won’t take you because we don’t have women. You have to go for audits to other locations so how do we send you there?’ They weren’t very convinced when I asked them to send me the way they send any of their men. After many calls,three months later,they decided to hire three women. A lot of women were applying,so I was not by any means the first applicant. If we didn’t do well,they may have not taken any woman in a lifetime. There was a lot of pressure because you were not just there to prove yourself,but you feel you have the whole of womankind to have to stand up for. And I was very fortunate to have worked with two very competent women. In a short period of 10 years,the country head of PricewaterhouseCoopers at the time,Amal Ganguli,said we now actively discriminate against the men to allow for the ratio of 50:50 because given half a chance,we would take more women than men. So it didn’t take long for that to change. I think there is a much bigger problem at the village level. But the heartening thing is that NGOs such as SEWA,with whom I am associated,are enabling women to make fabulous choices for themselves and their children.

COOMI KAPOOR: Is there a glass ceiling in the banking industry?

Naina Lal Kidwai: All the big banks are being run by women. No glass ceiling. It is the men who need to worry.

ANANDITA SINGH MANKOTIA: Mobile banking is just beginning to take off in the country. What is your assessment of the current regulations?

Naina Lal Kidwai: It is a very exciting area. About five years ago,I set up a group to look at it. There are challenges partly because the free movement of cash through the mobile phone network is not easy. But the good news is there has been change and we see companies like Bharti have implemented it. It is critical because I am not yet convinced that the revenue model is there. It is important that it be a for-profit model so that it can sustain itself. To me,the exciting part is how it will address the under-banked areas in the country,the 50-60 per cent of Indians who don’t have a bank account. That’s where we need the for-profit model.

SOMA DAS: Most EU countries are debating a quota for women in the boardroom. What should be the extent?

Naina Lal Kidwai: I have,for a very long time,been of the school that there is nothing like merit. Quotas actually detract. But it is just not happening. I think we need a quota to make it happen initially and then remove it. But let it happen. To have a view that there aren’t enough capable women to join boards is not correct.

HIMANI KAUSHIK: Can the Indian financial system withstand another 2008-like crisis?

Naina Lal Kidwai: For us,the problems are more internal than external. We have a lot going for us if we can get our act together. There is no reason why we should not be growing at 9-10 per cent. We know we can do it and we just need to seize the opportunity and get there.

Transcribed by L Ramakrishnan