Debt capital markets could become more important than equity markets in the next 3-5 years: Vishal Kampani

0
Banks have raised capital through equity issues over the past six months solely from a defensive perspective. Most of them do not issue capital at their preferred price or at the best possible prices they would have obtained in the market, MD says, Financial JM.

What sparked a rush to raise equity?
Money is raised solely from a defensive perspective because most banks do not issue capital at their preferred price or at the best possible prices they would have obtained in the market. If Covid-19 had not affected the economy, many of these banks would not have needed the capital.

Some critics have written obituaries for NBFCs in India. What is your opinion?
I don’t think a few bad precedents will hurt the industry. The sector will come out strong. Some instances of management and decision-making without proper compliance will not fail the industry. The successes of the best NBFC obviously prove the opposite.



How do you assess the role of NBFCs in India?
The consumer credit market in India has grown thanks to consumer credit companies. Similarly, the auto finance market has grown thanks to all the captive auto finance companies owned by OEMs (Original Equipment Manufacturers). NBFCs/HFCs have played a pioneering role in the country for mortgage lending and construction finance. We have a similar case with microfinance companies. NBFCs have played an important role in the development of the credit market in India.

What is the liquidity requirement for NBFCs now?
The liquidity problem for NBFCs is a thing of the past. We have a substantial excess of liquidity in the system. In fact, it is negative carry that hurts us more than liquidity. We keep a lot of excess cash on the balance sheet, most of which is invested in liquid mutual funds, whose yields have fallen dramatically.

What will change for NBFCs now?
NBFCs that haven’t leveraged themselves too much will certainly have the upper hand. In the future, the NBFC sector will consolidate in favor of players with better credit ratings, having a more conservative approach and with a better risk management mechanism.

How do you envision growing your business as an asset reconstruction company?

ARC is a very good company. ARCs are NBFCs and have developed the security receipt market. Our ARC is working on deals with international partners and we will close deals on the right terms and grow. However, the recent restructuring program may result in the assets not becoming NPAs. We will have to monitor this space over the next 12 months.

Will the bond market be India’s driving force?

We are very bullish on debt capital markets. We believe this decade is going to be important for the DCM business. India needs a very vibrant corporate bond market. We cannot rely solely on banks to finance us. For us, DCM will become as big, if not bigger, than the equity capital markets in the next 3-5 years.

What do you prescribe to boost consumption?

Recent direct tax measures have not led to a significant boost in consumption and business investment. If the government raises corporate taxes and drastically cuts taxes on individuals and the super rich, it will increase consumption and investment.

Businesses will increase their investments, enjoy tax benefits such as depreciation, and pay effectively lower tax. You have to think a lot about direct taxation.

What are your prospects for the next five years with

become a diversified financial services group?

We are bullish on our IWS (Investment Banking, Wealth Management and Securities) business as JM has added relationship managers, research analysts, bankers, brokers. We strengthened the Debt Capital Market (DCM) franchise. Wholesale mortgage activity is expected to pick up in Q4FY21, and retail mortgage activity will continue to grow. The activities of ARC and AMC should develop systematically.

Where does JM Financial stand in the face of complex large corporate transactions?

The biggest advantage for us is our ability to manage transaction complexity. For example, the Reliance-Future Retail and IL&FS deals we have advised are complex, with so many companies, lenders and companies. We won because we have an advantage. Our M&A and ECM franchise is the best on the market.

Share.

Comments are closed.