Ashu Suyash Curated
Managing Director & CEO, CRISIL
CURATED BY :
What are the challenges here?
It is still the first generation investing in mutual funds in India. Also the debt market has to develop. In India, you ask the consumer to migrate from fixed deposits to equity products. Internationally you have a bond fund and balanced product. Here the entire thinking around MF is equity.
Do you still see problems on distributors front?
We have found that our distributors find it uneconomical to serve small customers under the new regulatory environment. We are in the process of launching a platform in the next two to three months to help them.
And how long will it take to bridge that?
We will begin to see that happening over the next five to 10 years. We want to be in the top 5 in the long-term.
As an established global brand do you think it is tough to compete against domestic brands?
Initially it is a challenge but with time investors will start differentiating between banks and the capability on investment management. There is scope to bridge the gap. There is no doubt that local players are good but the key will be how do you do those different things, which a consumer lifecycle has gone through in other markets.
You are still a small player. What do you plan to do now?
We have grown faster than any player who came in at the time of our entry. We will do roadshows and talk about our funds. We plan to increase penetration in the existing 300 cities and will grow branches.
How do you see the Budget and what’s your view on fiscal slippage?
This Budget has pushed the boundaries on inclusion and plugged some gaps on social security with the announcement around the national health, which is material. By reducing the corporate tax rate for companies with turnover of up to Rs 250 crore, it covered a very large population and it should be seen a progression towards the next step. While there is a push for inclusion and rural growth, there are two risks — implementation and fiscal consolidation as there is some slippage on the fiscal front. However, I would take some comfort from where the money is going as it has not gone towards subsidies and instead it has gone towards improving productivity, improving jobs and social security.
Crisil recently launched CRISIDEX. How will it benefit the ecosystem?
Its a sentiment index and it takes into account production data, capacity utilisation, job scenario and sales outlook for the set of companies. With the on-ground survey, this will give a view on whether policy measures implemented are delivering any results or not. Along with SIDBI, we will survey around 1,100 companies at around 700 locations across 220 districts in a bid to provide granular insights on the sector. Recently we also came up with credit assessment scores for MSEs. While is no proper coverage of small MSEs and this digital platform will connect the whole ecosystem – the MSEs and all lenders such as banks and NBFCs, etc. For anyone whose turnover is less than Rs 10 crore, we do a comprehensive health check and give a credit assessment score. It takes into account the promoters track record, business model, relative financial standing and sectoral development and it acts as a very good assessment tool for lenders.
The government also increased the scope for “A” rated papers. How do you see that?
We have been discussing this with the government in the past. With the government allowing insurance and pension companies to go for “A” rated papers, the threshold for investors will drop at “A” and in our assessment what sits between “A” and “AA(-)” is a very large body of issuers. For the issuers, there will be a cheaper funding source because bond markets are more efficient. So it is a win-win for all. All said and done, it augurs well for financing per se. Financing was too concentrated only in the large ticket. With the country growing and and we remaining attractive for investors, the demand is there. This will unlock room in the long-term pool also because of the threshold being dropped to ‘A’. While the benefits may not come in a year, it has to be seen as a reform continuum.
How do you see the announcement on large corporates to borrow 25 per cent of the borrowing requirement from the bond market?
To make it 25 per cent is significant. It is very good for the issuance side and what will make the issuance to start moving is the interest rate outlook. A number of things have come in together. While RBI released large borrower framework last year, now you have issuance of 25 per cent of debt requirement for listed company universe. The two together send a clear message: a) it will reduce the dependence on banks; b) it will create a vibrant market.Unless you have regular issuance, you can’t develop a really robust yield curve for corporate bonds, which is there for G-Secs. And frequent issuance will make sure that adequate trading happens. While it will also create room for banks to lend to the SMEs, it will also reduce the impact of one company on a bank’s books.
In the current environment, what are business opportunities for CRISIL?
Greater awareness of the quality of ratings and demand for higher standards definitely mean good positive business opportunity for CRISIL. Commercial and analytical independence is central to how we structure our business. We ensure that our teams are incentivised for the highest rating accuracy. We have also established a vast global research business across all asset classes, risk analytics and benchmarking analytics through our acquisition of Coalition, which has been a market leader internationally.
So, what is your suggestion to investors?
Investors must have a fiduciary responsibility. Increased punitive action for not fulfilling this responsibility will result in increased vigilance and adherence to standards. Increased due diligence will always help because all ratings are not equal and that is a stark reality. Standards must be followed across all agencies. Secondly, investors must look closely at fact sheets. SEBI now mandates that the lower ratings received from a particular rating agency should also be published. Thirdly, rating criteria have to be kept current. Rating is not a one-time process and must be surveyed for the life of the corporation and instrument.
What needs to be done to stop “Rating Shopping”?
What investors need to understand is that every rating agency is not the same. An issuer can aim for triple-A rating and for that it can hop from one rating company to the other. But, to maintain such top rating grade is an equally tough task. If an issuer fails to do so, “Rating Shopping” backfires! So, if a rating company is doing its job right, you will see its default ratings would be lower.The awareness of these simple facts is more powerful than regulation.
There is a fear psychosis among investors. Are you factoring it in your rating methodologies?
Taking in sentiment compromises the fundamentals of ratings. We do take market movement into account and early warning indicators are built into our ratings process. It is important to understand that the ratings given by two firms are not the same. This stems from the underlying methodology, rigour, best practices, thought leadership and pedigree. To say that AAA from CRISIL and AAA from another rating agency are the same is an issue. We are extremely heartened to see that there is an increased flight to quality and recognition of the standards of excellence we have pursued for three decades in this industry.
What needs to be done for long-term infrastructure financing?
The credit guarantee fund or different forms of credit enhancement by the government will help bring in investment to the infrastructure sector. The government will have to lead with investing on the infrastructure side. For this, the government will need to create fiscal space by restructuring expenditure and boosting revenue. Additionally, it will be critical to bring back private sector participation.
Will such measures help corporate earnings?
Consumption will improve gradually and the investment scenario is likely to remain subdued this fiscal. With all those measures, we hope the organised sector will report improvements in earnings but consumption is key for any revival in the economy. It is important for the MSME and unorganised sector to recover as well.
Do you see any specks of revival?
An easing monetary policy, improved transmission of rate cuts, expected large spends on infrastructure and the government’s minimum income support scheme for farmers would feed into consumption. The recentlyannounced steps by the finance minister will also address some pain points and support sentiment.
Which is the worst affected sector?
The MSME (Micro, Small and Medium Enterprises) segment has been affected most adversely. The MSME segment contributes about 45% to manufacturing output, more than 40% of exports over 28% of the GDP while creating employment for over 11 crore people. This segment was predominantly dependent on cash economy and transition to the mainstream economy has been a slow process.
What actually led to a slowdown in the economy?
Critical policy measures such as demonetisation, GST implementation, tighter norms on banks to recognise and provide for bad assets, though pursued with good intent, brought about a correction in the growth path. Moreover, slowing global growth, falling trade intensity and uncertainties stemming from trade conflict also contributed to the slowdown.
New frontiers conquered in 2009.
Our decision to not launch new funds at the peak of the bull market in 2007. Also, I have definitely grown as a leader over the past one year.
New lessons learnt in 2009.
Two things: It vindicated our stand of being consistent in what we are doing. Second, leading the team through a period of uncertainty.
Your definition of power has it changed over the years?
No, I still believe that power is all about your ability to bring about change, make a difference and influence decisions.
Once again in the BT Power List. Does it still enthuse you?
Yes, it does. It's very satisfying to get such external recognition such as the BT Most Powerful Women award. Such recognition is important as somewhere it helps us in becoming a role model for younger women.
How do you respond to analysis?
The regulator could have approached it differently?
Do you think the rules of the game are changing to quickly for the industry to adapt to?
Do you think that regulatory intervention in the Indian industry has been harsh than else where in the developing countries?