Sriram: The most important and hotly debated topic of the last few weeks and months has been corporate earnings. The ones that have come out so far have pleasantly surprised some of us who had come to believe that the economy has collapsed in the last two months.
We are told that bankers are not able to do any work and they are only handling customer complaints and exchange of notes. We are pleasantly surprised by the performance of the tractor businesses of Mahind .. We are told that bankers are not able to do any work and they are only handling customer complaints and exchange of notes. We are pleasantly surprised by the performance of the tractor businesses of Mahindra & Mahindra and some of the other companies, some of the private sector banks have done quite well. The Indian economy and the corporate sector are far more resilient than we ever thought or ever credit to.
It is not so much about the businesses being resilient, it is more about the consumers being resilient. On November 8th, I never thought the effect will be as much as it was and today I did not think it will recover as quickly as it did from that.
If I was to look today, we are about 75-80% recovered from the effect of demonetisation. And that has happened because consumers are very quickly getting confidence back and taking the inconvenience in their ..
That is a very big if. I am sure Mr Jaitley and finance ministry officials are listening. As Dr Goenka said consumers are resilient. One of the sectors that we thought will actually collapse is the real estate sector and everybody was talking about how there are no sales happening, no enquiries, registrations are down. Mr Hiranandani, could you give us a correct picture of what is really going on? Are consumers are as resilient as Dr Goenka is saying?
In the initial stages, there were no enquiries. so I would say the first 30 days was actually not as cold as today but colder. That really was something which shook everybody up. But in the last two or three weeks, we do see a huge number of enquiries coming back. So the resilience of the consumer is certainly there and it is coming back more than I expected.
That is a positive sign as far as the economy is concerned but another major variation has also taken place. Earlier, you would say real estate is doing well, that story is over. Real estate is doing well for some people, okay for others and badly for the third, which was not so earlier. So you would get people who have been so badly affected by demonetisation that they are not able to pick up the heads. In fact, they have sacked thousands of people. We see that those who have been over leverage ..
So them being overleveraged, affects of demonetisation with RERA in the offing — a combination of all three is going to prove to be the death knell of some. This means you are going to see a lot of restructuring, a lot of M&As and shakeups in real estate.
Sriram: Right. But there are a lot of very good opportunities for you also if there is more restructuring and shakeups in the business?
As a company we have done the best in my career so far and I cannot complain personally except for the last 30 days. As for overall business opportunity that we saw this year, we did more commercial sales in this one year than we have done in 14 years put together. And this is extraordinary. We have seen residential sales pick up by 15-20% in the last one year barring the last 45 days. All in all, the segment is not as bad as people predict but the answer ..
So we are probably going to see the survival of the fittest or the strongest in the real estate?
Niranjan Hiranandani: A lot of M&A people sitting here. They have got a lot of business coming.
Sriram: A lot of people with real estate stocks in their portfolio may feel heartened by what Mr Hiranandani is saying but hold on to your thoughts because we are going to back on the real estate and some of the poi ..
Mr Anand, it has been a very tough two and half, three months for you. The common theme that we are seeing now from both Dr Goenka and Mr Hiranandani is consumer resilience. What is the picture that you have?
Rajiv Anand: A good way to look at that is the number of bureau enquiries, customers come to us. We go to the credit bureaus to check the credit history of customers. In the middle of November, that number was down about 30-35% over November 8th. That number c ..
These are enquiries?
Rajiv Anand: These are enquiries. When you ping the Credit Bureau, it is fair to say that it will convert into loans. Also up quite a lot are personal loans and credit cards. It is really the smaller value consumption which is now back in action. As Mr Hiranandani was mentioning, on mortgages and LAP, things will take a little more time before they go back to normal.
And are you seeing the prospects of retail credit growth actually coming back to pre-November 8th level?
Rajiv Anand: If you look at both November and December the fall typically industry has been growing at about 18-19%, that came down to about 15-16% so the point that all of you have been making that the consumer has been resilient is indeed playing out. So for the retail credit to go back to 18-19% is not going to take too long.
Story for you probably is not so much consumer resilience but consumer flexibility and adaptability and what kind of changes are you seeing given the digital push that the whole country seems to be going through and you are bang in the middle of this digital push. How flexible are the consumers? How are they adapting to this?
We have seen consumers across the board ready to adopt newer methods of payments. The number of people who have downloaded our app or the number of people who have started using cards, have been well reported. The industry — which is merchants in general and us — have had to innovate at a very rapid pace to be able to enable consumers and we have seen the industry respond to it. We have seen merchants integrating digital payments within two-three days and these ..
Of course, they were feeling the pain in the short term but that sort of mission critical approach to integrate payments we saw that demonstrated consistently across sectors and we saw consumers then actually start transacting and not just one instrument but across instruments from wallets, cards, everything and we saw volumes go up. So what we saw is that the consumers in general are ready and what holds back from further digitisation is the speed of innovation.
Are you also seeing this change in smaller vendors, in smaller shopkeepers, in road side stalls for instance?
Mrinal Sinha: Across. It is secular. I just spoke about a big massive organised business which changed all of its dealers. The dealers have been ready. The vegetable vendors, the milk booths, the taxi drivers so it is across industries, consumer goods, consumer staples, it is stuff which need to be financed through loans across the ..
So a bit of a mini revolution in the making one would say. One of the ways to judge whether this digitalisation and demonetisation has really worked is to see whether how it is penetrated into the rural areas. Are rural consumers taking to it? You made the point in one of the interviews that old tractors sales is 100% cash. Till all those things change, we cannot say that I am sure what Mr Sinha saying is happening across the country. Would you be able to give a better ..
I believe India will move to digital transaction quicker than many of us think today because we think rural people do not understand, do not know and are not used to banking but certainly we are beginning to see the change happening very rapidly at least in the urban environment where people are getting comfortable with dealing in digital transactions.
As far as rural is concerned, we have to break it up into two parts. One dealing with having larger transactions such as tractor buying and smaller transactions such as for buying seeds and so on.
As of now, use of digital wallet perhaps has not yet gotten into the point where it is in urban area. But I would not say that it is going to take years. I would say it is going to take months before the rural folks become comfortable with digital wallets. Smart phone penetration is not as bad as one might think in rural economy. In fact, we have been surprised often when we do something on phone on app and we think that farmers cannot use it and we find that they can use it better than many of ..
My belief is that the digital transaction in an economy will happen faster than what most people think.
Sriram: Do you think that the cost of digital transaction should come down and the government should somehow step in and say we do not want you guys to charge more or do you think there should be a more evolved way of dealing with this?
Fundamentally, the problem in India is that the cost of physical cash is in a sense hidden. All of us believe that the cost of cash is zero, which is not. But having said that, the transaction cost on a debit card transaction is 25 bps up to Rs 1000. In India, we have chosen to go with a structure where the merchant pays. In some countries, we go with the surcharge model where the customer pays. When you go and swipe a debit card or a credit card anywhere, the tran ..