Amity Institute Of Training & Development

The impact of COVID 19 - Financial perspective

Speaker: Mr Sriram Krishnan, MD & Co-Head, Global Transaction Banking India, Deutsche Bank AG

Interviewed by Kapil Wahal, Banking and Financial Head, Amity Institute of Training & Development

About: Mr Sriram Krishnan is a very distinguished leader from the Banking industry. He brings on board, more than two decades of experience in the Banking industry and his current role, he is the Managing Director and Co-Head of the Global Transaction Banking Business with Deutsche Bank. Along with that, he also helps the Security Services Business for Deutsche Bank. Prior to his stint with Deutsche Bank, Mr Sriram held very senior positions with Citi Bank, HSBC, Franklin Templeton & Stock Holding Corporation of India Ltd.

Click below to listen the recorded conversation.

AITD: In the last quarter, we have noticed that the entire Globe has been gripped by a pandemic that we have commonly known as COVID-19 or Corona. There are multiple questions that are coming to our minds right now. We are seeing so many developed Countries crumbling under this stress, caused by COVID-19 or Corona. We have seen so many Economies crumbling under the pressure of this Coronavirus. There are so many questions which are coming to our mind right now – what will happen to the financial market, what will happen to the job market, how will our Global Economies and our local respective Countries’ Economy will come back on the trail, will come back on to the path.

There are so many questions - what about the Hospitality industry, what about the Tourism industry, what about Aviation.

What will happen to the future of these Industries?

So, Sir, I request you to please enlighten us with your thoughts and your opinion on what’s happening at the Global level right now?

Mr Sriram Krishnan: Thank you Kapil for your kind introduction. It's indeed my pleasure and privilege to be with you all today and to share my thoughts on how we see COVID-19 and the way forward. I would like to begin with a story that I read about 2-3 weeks back. The story is about a place called Choluteca. This is a small town in the Country called Honduras and I think it's the seventh-largest Town or City, whatever you may call it. In 1930, Choluteca had a bridge that was built. And this bridge was rebuilt in 1996. At that time, a fine bunch of Architects were brought in and they wanted to build a bridge that will withstand the most difficult Hurricane. And the best Architectural minds came together and built this bridge. And sure enough, in 1998, Hurricane Mitch destroyed Honduras. Large scale destruction of the health order. But this bridge, the Choluteca bridge survived Hurricane Mitch.

It was a truly phenomenal Architectural achievement of the highest degree. And people were thrilled. But there was just one problem. The bridge was on top and the river was beneath the bridge. The Hurricane had shifted the river away in all its fury, so the bridge is still left standing today. If you go to the Internet and look up Choluteca, Honduras, you will get those images, it’s really funny. So, the bridge has no use whatsoever. Think about it. Isn’t it remarkable how things can change and how quickly they can change? Knowing fully well that a Hurricane will hit Honduras, it’s just a matter of time. Even so, the designers of that bridge could not accurately anticipate potential future conditions.

So, here we are today gathered to anticipate potential future conditions in the aftermath of COVID-19 to see what it has in store for us and what we need to do today. This is because successful Innovation is also about correctly predicting how markets and behaviours will change. And in the process, how these changes can invalidate certain previous assumptions. COVID-19 is probably the biggest Black Swan event of this Century. Even Countries and Cities with superior Health Infrastructure, are struggling to cope with COVID-19.

Germany is perhaps the one country that has dealt with COVID-19, very, very well, wherein, they have a very superior Health Infrastructure. But, a lot of other countries, if you look around, are struggling with issues ranging from availability of testing kits, to what is the right quantum of testing that one should undertake, availability of medical equipment, PPE kits, Hospital beds, ICU beds, Oxygen, availability of frontline Medical personnel, etc.

So, let's examine some of the key headlines in terms of changes in behaviour that we can already see in front of our eyes in the current circumstances. Probably, that will be a good starting point. So, if you look at headline changes, the first headline change that I want to speak about is the change in consumer behaviour. If you look at consumer behaviour during the pandemic and post the Lockdown, we can already make out certain changes.

So, the first question that has always been spoken about these days is ‘Will savings dampen consumption’? ‘Will people start spending or not?’ or ‘Will they just keep it aside for a rainy day?’

That in itself is a big behaviour change. We were not like that before the crisis.

Secondly, there is a distinct preference to shop online, and nobody wants to go to the brick-and-mortar shops anymore. So, there is a big fear of catching the infection. So, everything has become online.

If you look at the reports, the data seems to suggest that this year the volume of E-commerce transactions in India would be about 26% more than what it was last year. And the CAGR that is being estimated for the period 2019-2023 is about 20% for E-commerce transactions.

So, already there is a perceptible change in the way people are conducting their transactions. Even if you look at the US, the current year's volume of E-commerce transactions is already about 22% higher than what it was last year.

We are all seeing the impact on travel. Tourism is expecting in India to make a loss of 1.25 trillion rupees this year. Also, there is a distinct preference for two-wheelers. I saw a report the other day, which seems to suggest that two-wheeler production is almost back to about 70% levels. That's because a lot of people are feeling more comfortable and safer in two-wheelers, where they drive themselves than going in a taxi or any other mode of transport. So, that's another distinct change.

Also, people don't want to eat out anymore, but they are okay to pick up packed food or home order the food provided they have a certain level of comfort with a delivery service. People also do not want to go out and see movies; they want to see movies at home. And so, you see new movies are getting released on the OTT platforms.

In the UK, it has been reported that 21% of consumers have increased Bank balances because they just have reduced their shopping significantly; either, they have not gone to the shops or they don't feel the need to do so. Everyone is keeping money aside for a rainy day.

There is also a change in the industry behaviour during this time. If you look at Industry behaviour, the fundamental question that comes to our mind is ‘Will the industries, completely recover and bounce back and come in the clear in all cases. Of course, some of the industries and sectors might be back to normalcy, but then there are some others who have to make certain amendments and changes, and then there are yet others, who have been born during the crisis.

Cost models are being reviewed by many industries. A lot of organisations are speaking about working from home, more going forward, because that will help reduce the cost on commercial Real Estate. Also, corporate treasuries are beginning to review their lending arrangements and define target leverage with larger safety cushions. Supply chains are being reviewed globally. So, all of this, points to a distinct set of outcomes that we must carefully monitor based on which we can decide what action we need to take.

The third change in behaviour is around the digital push. Everyone and everything is going digital these days. Obviously, during the Lockdown, all of us working from home, some of us continue to work from home, even though the Lockdown is slowly coming to an end in some way or the other. During the Lockdown, people had no other choice but to undertake all communication online, shopping online. So, cashless payments are on the rise, digital currencies are in demand. Even the relationships are less in person and more through the video mode like how we are interacting today. So, all of these are significant changes from an overall standpoint.

Now, let's look at the impact of COVID-19, on the World Economy and also on various Countries. And, of course, we will also come to India. If you look at the World Bank report, which was just published a few days back; World Economy is expected to grow by about 5.2% in 2020. The US economy is expected to grow by about 6.1%, Eurozone by 9.1%, and India by about 3.2%. This is the World Bank report. Of course, there are different Economists, different estimates and the numbers might vary, the scale and size might vary marginally, but we all by and large agree, that this is the year in which Economies are going to shrink, not grow.

Now, let's look at some of the Countries and how they have been impacted.

Let’s start with the US. The US has a big crisis on the table which is the crisis around jobs. It's estimated, that, about 56 million people have already lost their jobs. And that's a big one for the Economy to deal with. Also, 33 million people have filed for unemployment benefits.

The unemployment rate is almost 20%, or thereabouts. And, the number of people who have tested positive, seems to be increasing all the time. So, a V-shape recovery seems very challenging even for the US. Look at the European Union. The World Bank report says European Union is also going through a tough time and predicts a huge amount of job losses. Again, it's estimated that about 59 million people will lose their jobs.

Then, let's look at Germany. Germany is perhaps one of the best countries when it came to dealing with COVID. They have great Health Infrastructure, they did an amazing job in terms of putting money into the hands of people at the right time, helping small businesses, also their levels of testing were very, very high and they continued to treat people who had tested positive. So, I think Germany was probably an example in the entire crisis. They had great laboratories; they had solid Research going on in terms of finding a solution to deal with this virus. And the only two parameters where they were probably struggling was one on exports where clearly exports are dwindling this year, and it's expected that there will be a 11.5% drop in exports in Germany. And in terms of unemployment, it’s estimated at 5%. Still, that's very, very reasonable if you look at it in a comparative measure with the other Countries.

Look at what's happening in the United Kingdom. Again, they have been hard hit. They took a very different approach. Initially, they thought there is no need to shut the Economy and people will simply develop the necessary level of immunity – they called it ‘herd immunity. Unfortunately, the strategy backfired and then they had to go into Lockdown. Their Education sector is the hardest hit and most of the International students have cancelled their enrolments. So, there's a 90% reduction in the output. The construction industry in the UK has been significantly hit, apparently 70% down compared to last year. Factory output is down about 55%. Travel has been impacted and that's not good news because they also have a significant chunk of revenue coming from Travel and Tourism.

Look at China, what's happening in China. China is probably one of those big street-smart Countries when it came to dealing with the crisis. They managed to restrict the crisis or the spread of the virus significantly. The virus never went beyond Wuhan and Shanghai, for example, or Beijing. They were never impacted by this virus at all. And, in terms of their challenges, their challenges are around the Aviation industry, which has been badly hit and the Real Estate industry which has also been significantly dented. But they managed to be very, very clever when it came to mass manufacturing masks and other protective equipment and supplying these two rests of the world, particularly to the European Countries, which badly needed these during the peak of the crisis. China has also smartly captured a bigger share of the Steel demand in the world, this year. So, last year, they had a 54% market share of the Steel output. And this year, they are expected to have about 62% market share in Steel. So that's very, very clever of them to capitalise on this small window of opportunity.

Let's look at South Korea, one of the best Countries, when it came to dealing with this crisis without shutting down the Economy, without going into Lockdown, unlike many other Countries. South Korea went into rampant testing mode. Still, they couldn't protect their large Revenue contributors – one, is, of course, the Automobile industry for them – Hyundai and Kia Motors, put together have suffered an 84% drop in Revenues. Also, Samsung, which make memory chips, they have seen a roughly 20% dip in the Revenues. Jobs are getting hit because they are an export-oriented Company and the unemployment rate in South Korea is about 4.5%.

Then, look at a couple of other Countries which are also entrusting - Australia and New Zealand. Australia is heavily dependent on Tourism, just like New Zealand. Australia also has a lot of international students, particularly from China coming into Australia for study. A lot of those were cancelled and that led to an impact. And they realized that Travel was a challenge, and they were trying their best to increase Domestic Travel. New Zealand, for example, they have decided or is in the process of desiring to have a four-day work week so that more people will travel at least domestically, if not internationally, and that can also help the Economy during these times. Australia and New Zealand are also talking about a travel bubble, among their two Countries; given that those people are relative, not so badly impacted by the Coronavirus. They think, that if there is a pact for people from either country to visit the other for Tourism purposes then that will help both those Countries, which is a very smart thing to do in these times.

In terms of action taken, the rest of the country, obviously, have tried various means to ramp up the expenses plus the Central Banks of the World have increased liquidity significantly. Those are the large steps, and of course, the big announcement including from the Government of India on the massive package etc., that has happened in every Country.

Now, let's come to India. And, before I get into what the impact is in India on various sectors, will probably take a couple of minutes to just understand how COVID-19 is different from the global financial crisis from India’s standpoint. If you look at the global financial crisis of 2008 India was not directly impacted, India was impacted indirectly on the rebound. At that time, India was obviously very-very robust as an Economy. We had very low levels of non-performing assets, maybe 2-3% NPAs. And by and large, the Economy was in reasonably good shape. So, we were obviously much, much better placed to deal with that crisis.

However, if you look at the moment in time when the COVID crisis hit India. At that time, I think, in comparison the Indian Economy was on a slightly weaker footing, I am saying this because, in the last couple of years, while the Banking system is being steadily cleaned off the non-performing assets. We have had a non-banking, finance company problem, so the banking and NBFCs sectors are both relatively weaker today. And not just the banking and NBFCs, but the housing finance companies, the micro-finance Companies, the whole system is a little bit impacted at this time.

As for data available in the market, the level of NPAs in the Banking system is about 9.3% of advances. And I think, recently, the RBI made a statement in one of the announcements that this could very well be about 10.5 and 11%, now, because 9.3% was as of September last year. If you look at the NBFCs again the data suggests that there's about 6.3% of the advances which were probably NPAs. 6.3% looks a little bit on the lower side.

So, if you collectively look at it, we are talking about 15-20% of the assets have gone back, which is a huge number in comparison to what it was in 2008. So, the challenge for us during this time has been the fact that we haven't created that magical output that we always thought we would, unfortunate for a variety of reasons. The demographic advantage, which is so significant for India given that we have a very large young population and that can speak English as well fluently. This was expected to fetch bigger dividends, than what we have actually seen in reality. So, job creation is one area where we have some work to do still.

Now, coming to the impact of COVID-19 in India if you look at various sectors. Take Textiles and Apparel, for example, I think they are looking to make, they will end up with losses of about 13,000 to 14,000 crores this year. Take Aviation; at minimum, it is estimated that they will make about 25,000 crores of losses because Travel has been badly impacted during this time. Take roads and highways, the developers and toll operators are expected to make a loss of about 3500 to 3700 crores every quarter. Take Real Estate Infrastructure and Construction segments, there are Infrastructure projects to be the extent of 59 lakh crore rupees that have got impacted because of the Lockdown.

And we will have to revive those projects and find a way of finishing them. Take Steel and Mines, for example. The demands for Steel and Metals have come down. And it's estimated that the demand would be about 13-15% or so; that means there is too much Inventory piled up and unless Manufacturing activity picks up and things get back on track this segment is going to be again struggling. Take petrol or diesel, diesel is expected to grow for sure. The demand is expected to come down by about 8-13% anywhere between that range. And in the case of petrol, hopefully, it will pick up, the demand for petrol because the Lockdown is coming to an end in most parts of the country and people are slowly coming back to work and so on. So, the growth in demand for petrol is expected to be between 5 and 12%.

Take Healthcare. We will be fine in Healthcare; unfortunately, there is a bit of dependency on China, because we import a lot of stuff from China in that space. So that's the one area where we could have been okay but for this dependency. Had we not been dependent it would have been brilliant. Telecom is probably the one sector that technically is not impacted at all by the crisis, but then they have the old problem of 90,000 crores past dues that creates uncertainty for that sector. Power has been always a challenge, the distribution companies are State managed, they have never been able to do a full-proof job, the leakages are costing every year, and this year because of COVID, another 20,000 crores of losses are estimated. And then look at chemicals; that space is struggling. So, if you look at it, the key sectors which are badly hit - are Banking, NBFC, Power and then there are certain sectors like Apparel and Textiles, which have a large number of jobs and MSME of course. And, then there are several sectors which are very badly impacted like Tourism, Hospitality, Entertainment, Gems and Jewellery and so on.

So, some of these sectors like Building and Construction, for example, also give jobs to another 200-250 ancillary Industries. So, there's a lot of impacts, they have lots of damage during this crisis. Now let's come to the big theme for India, and what and how can you come out of this.

If you look at what is good in India today, I think, compared to let’s say 10 years back or 15 years back, we have better infrastructure, we have better airports we have better facilities like metros and better infrastructure overall, we have WIFI, we have all kinds of things. We also have relatively lesser poverty. We have greater financial inclusion. We have some key measures, reforms which have got done for example GST, IBC etc. And investors, particularly foreign investors, like to see the democracy-based setup in India. There are suitable checks and balances which gives them a lot of comforts. Also, India has been a preferred investment destination now for more than 25 years. And there's been always that comfort in terms of repayment of principal, India has had a great track record. Government bonds are looked at as hugely attractive because of that aspect. The track record is impeccable and the recent reaffirmation of SNP that there is no change in our rating is a big comfort during these times.

So, what does India badly need to come out of this rut? India needs two things amongst others, if I have just been speak two - one is India needs to have robust demand back in place. We need people to consume what is made in India; we need vocal for local to come true. And today while people might say because the crisis is still looking around and not fully gone, I think it's a matter of time, the festive season is around the corner and hopefully, people will start spending. Even if we start taking vacations within India and not travel abroad for example. Even things like that can make a big difference.

India secondly needs apart from robust demand; India needs robust investment flows. And when I say investment flows it's not just the domestic investment flows but also the foreign investment flows. And the investment climate while it might have gone a little bleak over some time because growth hasn't materialized in the way in which people thought it would India still remains very attractive. What we need to probably do during this time is capitalize on what we have seen in the last 2-3 years. Post the demonetization initiative of 2016, we have seen a lot of money come into the financial system in mutual funds in insurance and so on. So, I think people need to be encouraged to bring out the gold, bring out all the non-productive assets, convert the land into financial assets and help the country and help the economy during this time. I think the government can also look at options like making land lying with the bank as collateral, making that kind of land work, buy it out and give it to those companies who want to set up in India. We hear that a lot of companies are looking to move out of China, so it's our chance now to capture those companies. So, we have to give them land, we have to make it for them easy to come to India and we have to help foreign investors in every possible way. Also, probably we can take the land from defaulting companies, those who are in various stages of disputes. Take that land out, Government can acquire it under the law and then make it available to such investors who are here for the long term. So, in terms of key focus items for India, one, is of course, we need to solve the stress in various sectors whether it's privatization of Public Sector Banks or giving more autonomy to banks or maybe we should look at creating a bad bank. Maybe we should look at a different kind of an initiative like it happened in the US and even in India during the financial crisis. The Prime Minister has spoken about land labour reforms for sure law, as well needs changes everywhere. Some of these laws are very old and they need revision. Labour reforms have already been announced by some States so that's exciting. So, we need do a lot of stuff to solve the stress. That's the first and foremost thing for us.

And, then the second thing for us to do or to focus upon would be to build self-reliance or the “Atmanirbhar Bharat” concept that the Prime Minister spoken about. I think that's a very, very promising one and very strategically perfect initiative to go with. The Confederation of All India Traders (CAIT) has made a statement that they will be able to cut down the deficit with China by about 13 billion dollars by December 2021, by avoiding the import of about 3000 items which we are today importing left, right and centre.

Our trade deficit with China is in the range of 70 billion dollars, it used to be 2 billion in 2001. So, what we import from China is hilarious, everything starting from plastic, batteries, everything is imported from China. But, if we were only to be a little bit conscious and aware of this aspect and if we were to build self-resilience in India, and start consuming Indian, so, India for Indians should be the mantra and if we start doing that, I think this can be easily reversed off. Also, vocal for local is an important theme. We should travel within the Country, if possible, for instance and stop importing, exports can follow later on but it’s important to stop importing, regularise the trade deficit to various Countries, reduce it rather. And focus on ease of doing business. India has already made significant strides and Worldwide ranking of Countries and we need to get into the Top 20; maybe it should be very, very easy to operate in India, to setup and do stuff. We should also focus on building a robust Healthcare system, so that, we are able to deal with any such crisis in the future, focus on Education and last but not least be Innovative, to whatever extent we can.

I will just talk about one website today which we bumped into. It's called covidinnovations.com. If you go to that site, you will find that there are 900 plus Innovations which are already listed. These are all Innovations that have come up during the COVID crisis Worldwide. And you can go through sector-wise and see what Innovations there for us are today to capitalize on. I can't see why we cannot latch on to Innovative ideas, this is the time when we can make the change, and this is the time, and we will find a support that we want to make these changes.

One last bit, before I wind up is on the shape of the recovery. The shape of recovery can be V-shaped, but for a V-shape recovery, we need to do a lot of testing, we need to make people feel very safe, feel very comfortable returning to the Office. The Government has to protect jobs, the Government has to protect small businesses, and do a lot of things in order to get the Economy back on track very, very quickly.

It looks challenging for us to achieve the V-shape recovery now. Will it be U-shape to take a much longer time to recover, probably 2021 is when a U-shape recovery will deliver, that also is arguable? Probably we will be a W-shape recovery, that's what I think, where we will recover but then we will have one more dip. Because, I can see the number of cases, again going up, as we start to open up so that the unfortunate part about the recovery process. I just hope that we don't turn into an L-shaped recovery which will be very long and very painful.

Japan went through in the 90s. And we all know how they are languishing even now. So, in terms of return to office protocols, for example, when people start coming back to the Office. I see many organisations; they are making a list of people who are willing to come back to the Office and then they are doing some Engineering around it.

If we do that, I think we will never be able to achieve V or even W-shape recovery. What we need today is Innovation, to help us make the right decisions. So, the Innovation has to be around where the employee is coming from if he or she is coming from a containment zone and we don't want that person coming to the Office, because the others are not so safe there. So, that's the kind of intelligent software that we should be probably used to achieve faster recovery from this crisis. Innovation can buy a lot of time during this time of recovery process. And during that window of opportunity, the Government can support businesses, pump in more money and already they have announced a lot of measures to boost the supply side, and around the time the festive season comes, hopefully, we will see some more announcements from the Government to perk up the demand. And if that happens in a timely way, I think we are in a good shape to recover soon. So, I want to stop there. And back to you Kapil, for any questions that the audience might have.

AITD: Thank you so very much for the wonderful insight. You pretty much covered the entire Globe. The focus was on the global scenario as well as on the Indian scenario and some of the key things that I have noted down, you spoke about digitisation, you spoke about Innovation, you spoke about how we as a Country, need to support the Prime Minister’s call on being self-reliant or ‘Aatmanirbhar’.

The rally that we are seeing in the markets despite the Weak economy, will it sustain, given the challenges that Corporate earnings will take over the next three to four Quarters. And, if not, when are we likely to see the next Bull Run in the market?

Mr Sriram Krishnan: Unfortunately, I am not a markets person, but I will still try to generally answer this question. I don't have any exposure to the market, so I am just disclaiming that at the very beginning, I only have a few investments in Mutual Funds, I don't have any direct stocks at all in my Portfolio. So, in terms of how I look at it - markets behave based on, not just on the intrinsic value of the stock, but also, our function of many other aspects including how global dependency is going to impact us. You see any Globalized framework which has been in operation for the last several years, Countries of the World have got used to depending on one another in order to find the most efficient way of doing things.

So, that's why we never blinked an eyelid before importing from China and before importing things like small plastic bowls. We have gone down to that level that we don’t even produce even a small plastic bowl in India. So that's the kind of dependency we have built. Now, if there is certain information or certain announcement around what's happening in China that also tends to affect the stock market in India, to some extent, because of this dependency which has got so complicated over a period of time.

Also, there is a concept of ‘Hope Investing’. A lot of people react to just a factor called ‘Hope’. For example, if there is a certain announcement around a vaccine being invented to deal with this virus, tomorrow you will find that the market has completely gone up like never before. And that's because again while the fundamental value of the Companies has not really changed, there is newfound hope in the markets about Growth being possible in the fore-seeable future.

So, there are several factors like this, and which is why the market keeps going up or down. As far as I am concerned, I am a long-term investor and I stay put in the market for a very, very long time and when I look at my Portfolio after a couple of years and generally, I see that the CAGR has been around 15% or so in India over a period of time in the Equities market. So long time investors don't have to worry too much about the period fluctuations. That's how I look at it.

AITD: What are your views on India emerging as an alternative Manufacturing hub, as compared to China, given that there is a larger negative sentiment towards China, so how does the world see India as an alternative to China?

Mr Sriram Krishnan: So, India has always been seen as a good investment destination, there's no doubt about that. Like, I mentioned the fact, that we are a Democracy, we have our checks and balances, you can't run away with anything, no Government can run away with anything in India. There's just too much complexity in the way we operate. So, people are much more comfortable with investing in India and setting up India a manufacturing plant for example. But what puts them off is the number of approvals, licences, and the number of complexities that they have to deal with. So, luckily of late, we are seeing some good news on that front. The UP Government, for example, has announced that there will be no Labour Laws, but we have to learn from other Countries in this respect.

If you look at Bangladesh, for example, you can have three shifts in Bangladesh and the entire Textile business that India used to have, a significant chunk of it has moved away to Bangladesh, simply because, they have permitted women to work in three shifts whereas we don't. There are Labour Laws out here. Also, in Bangladesh, for example, if you want to hire someone today and sack the person in three months’ time you can, nobody will stop you from doing that. You can't do that in India. So, these are the challenges which investors want to be addressed and also there has to be a proper quick redressal process in case of any difficulties; so, in the past, we have probably not been that competitive on some of these aspects with the other Countries, but I can say that we are learning, and we are changing so there is hope.

AITD: A leading question to this is, does India have the right kind of Infrastructure and Human Resource capability to support and enable India to become the next Manufacturing industry? What are your views on that?

Mr Sriram Krishnan: India certainly has a lot of lands, India has a lot of people, so, land and labour can easily be made available without any difficulty whatsoever and capital the manufacturers of the World are ready to pump in the capital and set up the facility out here. Some years back, if you see when the Tatas wanted to move out of West Bengal and Mr Narendra Modi was the Chief Minister of Gujarat, he said just come here I am going to help you in every which way. And, I think within a short period, within a few months if I am not mistaken, they had set up the plant in Gujarat and they had also manufactured the first car.

So, if you have the will, you will be able to make it happen. So, that's the kind of attitude that the whole Country needs to demonstrate today if we want to capture the business coming out of China and I do believe that the Government is having discussions with a large number of manufacturers who are looking to shift out of China, so, there is every hope for us on huge levels of success this time.

AITD: Our Honourable Prime Minister was recently addressing the meeting of Indian Chambers of Commerce where he was speaking to the Industry leaders and he gave the mantra of 3Ps - People, Planet and Profit; where he was talking about taking the Economy from more of command-and-control mode to plug and play mode. Do you think that we are ready for that kind of a shift, the way we approach our requirement?

Mr Sriram Krishnan: We need to get ready for that kind of a shift. I think the Prime Minister's message is very clear and he's always been very simple in his use of abbreviations, which are not only catchy but very powerful at the same time; so, I think we have to be grateful for the fact that we have a leader who has laid down the blueprint, which, if we implement, we are sure to succeed.

Now, a lot of it depends on the execution capability but I do believe that we have very many smart people in this country, who can make it happen. His job is to lay down the blueprint and help in every other way possible through the policy and through the support needed from his Government. Ultimately, it's the Industry that has to deliver; so, if industry has some other asks, we should go back and put them down and get them done. But we can't just keep sitting and just talking about it. We have to get into action mode.

AITD: That’s a fair point, Sir. You are talking about everybody taking ownership and getting into the action mode. Another question which has come is, as follows:

Honourable Supreme Court has asked the Reserve Bank of India and the Finance Ministry to explain on interest on interest. Everybody is talking about three months of lifeline given by the banks or credit cards or loan payments and some section of the experts feel that this is like giving undue advantage to the Banking industry because they are earning interest and now, we are talking of interest on interest. So what are your views on that?

Mr. Sriram Krishnan: We have to understand that out of every ₹100, there is a CRR requirement, there is an SLR requirement and there are other costs in the industry and what we lend out is only the balance first of all and out of the balance given the environment there's a lot of loans going bad and the level of NPAs like I was saying is probably anywhere in the range of 11- 12% in the banking industry alone. So, it's quite an unfair statement to make to say that banks have made huge amounts of interest. Banks have also suffered a fair share of the losses. So, I wouldn't necessarily agree with that criticism that has been levelled. On the contrary, I think the moratorium that's been announced it’s a fair one from the point of what people are going through. Obviously, this crisis has been very harsh on a large number of small businesses and also the migrant labourers who do not get their salaries and who have nowhere to go, unfortunately, so it's very harsh on a lot of people because they have possibly not got their salaries or wages on the one hand and still they have to pay their EMIs on the other. So a three-month moratorium given that the lockdown itself was 68 days long and then we are slowly opening up gives them some respite. But obviously, the money has been lent and the interest is due to the bank so I don't know how that can be seen as unfair. So we will have to help each other and come out of this. At the end of the day, it's the banking industry that's going to provide the liquidity that's going to support the Government's measures through the guarantees and help the same businesses grow back to their glorious past and get better there than that.

AITD: One of the questions which have come is around the Global Rating Agencies, how they are perceiving India and very recently we saw in the newspaper, in various headlines most of the rating agencies have rated India as BB minus, a negative rating that they have given. So from the long term perspective will it not impact the FDI investments and overall investments that India was otherwise expecting?

Mr Sriram Krishnan: So, we are at a level of the rating where one level below is ‘junk category’, that’s the level at which we are now across all the three rating agencies; whether it's S and P or Fitch or the third one ICRA. So, the problem now, for us is, we cannot afford to fall below where we are, number one. Because, if we do, then certain long term-oriented investors like Pension Funds, Sovereign Wealth Funds etc. and uneven Endowment Funds, University Funds - these types of investors don't want to invest in ‘junk category’ bonds, ‘junk category’ Countries.

So, we will have a challenge when it comes to such types of investors and investments from those investors. However, if you look at where we can go from here; I think the only way we can go from here is up because the credit rating agencies do not downgrade a Country straight away, they first talk about the outlook and then they go ahead with the downgrade after another six months. We roughly have about one year on hand within which time if the Economy recovers from the crisis and starts promising Growth, as it used to be, we should be back on track and our rating can even improve in the next couple of years or so. So, we have to wait for those things to happen.

AITD: This question comes from the corporate sector. Very recently, of course, the COVID thing, we have seen a lot of labourers migrating back to their bases and people preferring to be in their hometowns in their base centre and right now we see the corporate sector setting up their shops in Tier 1 & Tier 2 Cities in India.

Do you see a possibility or a trend where the corporate sector would like to move to Tier 3, Tier 4 cities and maybe help the Economy of those Tier 3, Tier 4 cities and also the respective States?

Mr Sriram Krishnan: Moving to the Tier 3 or Tier 4 kind of Towns is a tricky decision and I will tell you why; because, in those Cities or Towns, you don't have enough eligible population from the point of view of the corporate.

Let's say a Multi-national Company, let’s say, a financial services sector goes to a Tier 3 or a Tier 4 Town, then, they may not find a sufficiently good number of English-speaking candidates to service customers, for example, that may be a challenge. However, if the Company is a manufacturing company, they may not mind going to Tier 3 or Tier 4 Towns, because they are just going to have a factory probably and they just need labourers who can work in that factory.

So, it's a function of how good the Infrastructure is, in that particular place, and how the licences and other stuff, is it easy, are there any challenges in terms of access from the nearby port or how do the raw materials get delivered there and so on so forth? So, all those things have to get ticked then yes, these Towns also have the required level of attractiveness about them but at the moment my sense is that India's Tier 3 and Tier 4 Towns need to improve. I think the ‘smart city’ concept that the government had spoken about, needs to be implemented and we need to create about 200 for 250 nice ‘smart cities, then yes, those Cities have a lot of opportunities from this perspective.

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