Do you expect a drawdown in credit due to continued liquidity easing? The RBI governor also spoke about the discussion paper on fees for payment systems. Given that you are in charge of digital banking, what kind of discussion would you like to see around all this payments space?
In terms of credit growth, an interesting feature that we noticed in the third quarter is the surge in demand during Diwali. We used to see a sharp drop immediately after festival season, but we don’t see that kind of sharp drop now, indicating consumer demand is picking up and credit usage is improving. but that it is not up to the task. We see that overall growth in retail continues to have strong momentum. Business credit growth has improved slightly, but unless the private investment cycle kicks in, growth may not be significant. What we’ve seen in business credit is essentially a better use of working capital limits, which indicates that economic activity has picked up. There are credit proposals coming from part of the investment spending in the metallurgical industry, especially in the steel industry, as well as refinancing in terms of the formation of InvIT and the infrastructure pipeline. We see a slight increase in it, but I think it’s too early to say if it’s a significant increase.
And when it comes to digital payments, there has been a huge explosion in digital payments. In terms of the pricing structure for the payments space, there has been more or less a lot of commodification. I don’t think there is a lot of money to be made, but one thought that we have shared with stakeholders is that there is a significant investment in infrastructure that is being made by all participants in the payment area. These infrastructure costs must therefore be borne. So whether this discussion paper is going to address that issue or not, unless we see the document, we won’t know.
At a time when you have hawkish comments from the Fed they talked about typing over and over again, it looks like the US stock markets have already incorporated that as well. It will only be a matter of time when we may also have a calibrated movement from the RBI. How soon do you think this could happen when the RBI has to bite the bullet and maybe intervene on rates?
Not definitely in the next two quarters. I think it could be somewhere in the second quarter of next fiscal year. As the governor repeated several times in his announcement, what is important is that the recovery is still nascent in the Indian context and obviously the RBI does not want to upset liquidity management. So I think this momentum will continue for 2-3 quarters. We need this stability of key rates as well as calibrated liquidity management going forward.