Tuesday, 17 September, 2013

Rural Opportunity

Rural India - The emerging boom

I was listening to Aditya Puri of HDFC Bank a couple of days back on Bloomberg. One of the things he mentioned was the rural emphasis for his bank. The points he elaborated were broadly:

  • 1300-1400 branches opened in the past 3 years, most of them in rural areas. (I can corroborate the same with anecdotal experience that I've observed in interior AP & TN.)

  • A vast majority of the accounts being opened in these new branches have a much greater focus on deposits than on loans - Presently.

  • With banking comes greater financial awareness, and soon the trend of taking loans, credit cards and consuming other financial products will explode in rural India.

Natural corollary of the above (my interpretation):

  • Consumption is likely to explode to unimaginable levels in the next 5-10 years in rural India.

  • FMCG companies, consumer durables, service providers like banks, hospitals, educational institutions, restaurants, etc. are likely to see an entire new market in rural India in the next few years.

  • With increasing rural prosperity will come a demand for better quality infrastructure - both physical and social

  • This will result in enormous growth in diverse sectors like roads, farm equipment, power generation, healthcare, insurance, automobiles, shopping malls, entertainment, education, commodities, housing, telecom, etc.

  • Multiplier effect on GDP is going to be immense. Imagine a scenario where the whole of Rural India (or at least a vast portion of it) becomes like Kerala. With the difference being that it is going to be driven by domestic prosperity instead of Gulf money. The result is likely to be a huge growth in GDP numbers.

All the above, would, without any doubt, result in a virtuous cycle which will:

  • Increase per capita income

  • Reduce pressures on our major metros by creating employment opportunities closer to the native place of every villager

  • Massive real estate boom

  • Enormous increase in the market capitalisation of listed companies with a focus on the rural markets

My only question is: Who is going to benefit from all of this?

Unfortunately, my hunch is that the rich promoters of all these companies and the foreign investors who are investing heavily in our markets will take the major share of the emerging cake.

Very sadly, we Indians do not invest sufficiently in equity markets. As per publicly available information, just 3% of the savings of the entire Indian population goes into investing in the equity markets - both directly and through mutual funds. What's even worse is that in the nineties (prior to the Harshad Mehta scam), the figure had reached almost 13% of the savings.

We must correct this situation. Obviously the government has a major role to play in ensuring this anomaly is rectified at the earliest by encouraging people to enter the equity markets. However, this cannot be left only to the government. Financial service providers - especially banks - must develop an attitude to motivate their customers to enter the equity markets. The must, for instance, facilitate passive index-fund investing through attractively designed SIP offerings. This will certainly result in a win-win situation for all concerned.

Will our bankers raise to the occasion?



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Wednesday, 4 September, 2013

Welcome, Raghuram Rajan!

Raghuram Rajan takes over as RBI Governor

Raghuram Rajan has just taken charge as the latest RBI Governor.

As he's mentioned in his first press conference, he's taking over at a rather challenging time.

He's made a whole lot of "right noises" and "action-oriented announcements" addressing areas pertaining to:

  • New Bank Licences (Committee headed by Bimal Jalan, ex-RBI Governor to give recommendations)
  • NPA problem (to be analysed by group headed by Dy Governor KV Chakraborty) - He categorically says that "Promoters don't have a divine right to remain in charge"
  • Financial Inclusion (Initiatives to be suggested by panel headed by Nachiket Mor, a rare banker with a large human heart of Gold who gave up a surefire successful banking career at ICICI to get involved in social service)
  • Liberalising Bank Branch Expansion
  • Encouraging Foreign Banks to form subsidiaries (rather than remain branches of their global owners) - This will certainly enable RBI to have a better degree of control over possibilities of Systemic Risks
  • Mobilising NRI Deposits
  • Transparency (Well, his first press conference shows his intentions rather transparently!)
  • Team Spirit - He's categorically made it clear that all his announcements are NOT his own ideas but a combined result of team work by his able team at RBI -This obviously ensures that he will start with an advantage of his team being open to working with him rather than "against him". Likewise, he's talked about cooperating with other agencies like the SEBI and Government of India to hasten efforts at liberalisation of our markets
  • Using Technology (Spoke about panel to study mobile payment mechanisms, for instance)

WOW! That's a rather long list (and only a partial one based on my own memory) for a first day show! Hats off to the new RBI Boss. We're in safe hands, I must say.

Towards the end, Raghuram Rajan summed up things beautifully with these words:

"Change is risky, but not changing is riskier!" 

He's off to a great start. As the old adage goes, "Well-begun is half the battle won". Now, we'll wait for actual action. We're in for interesting times...

Watch this space!



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