RBS says worst over for economy, sees no rate hikes

How are you approaching India as a market especially when many of the banks are consolidating their operations?
India has always been and will continue to be a core market for RBS. We have a profitable business here and we have the third-largest employee base in India within the RBS Group globally outside the UK and the US. We are focused on providing strategic value to our clients as a long-term banking partner and not for one-off transactions.  We have reshaped our businesses, in line with our global strategic review that happened five years ago. RBS is focussing on its core businesses in India, i.e. corporate and institutional business (markets and international banking) and private banking. RBS will continue to offer wholesale banking, cash, payments, trade finance, debt capital markets (DCM), risk management, and a comprehensive range of wealth management solutions to its clients. 

How do you see economic growth shaping up this year?
I think we are pretty much at the bottom of the economic cycle, with the slowdown in the infrastructure projects and weak growth in manufacturing and services. Our interaction with some of the manufacturers shows that they are still hopeful, as underlying demand is still there. One thing especially that worries them of late is the high currency volatility, which has been impacting their costs. This year, the monsoon has been good which is likely to continue supporting consumption for two wheelers, consumer durables, etc.   

Sometimes, it takes a crisis to develop a consensus for things to start moving, as we are seeing in our markets. The positive result is some of the long-pending legislations have been cleared, e.g. the pension Bill, for one. The unconventional measures that have been taken to increase the foreign exchange inflows have worked well and cooled the markets. However, the real trigger has to come from the infrastructure side and increase in capital deployment. Overall, we expect the economic growth this year to be around 5%, and higher next fiscal.

In the mid-quarter monetary policy review, the RBI surprised the markets with a rate hike. Do you expect more to come?
It seems unlikely that the RBI will increase the repo rate further in the upcoming second-quarter monetary policy review because core inflation is low. Further decisions would depend on how the inflation numbers pan out.

What is your outlook on the rupee?
The rupee may gravitate towards 60 due to the FX inflows on account of the recent measures from the RBI. However, we will see a reaction once tapering is announced in future. Practically, the Fed is unlikely to start tapering till January as the US economic data remain mixed. We need long-term measures to help stabilise the rupee.

What’s your call on equities at this point of time?
The last few months have seen markets move sharply on both sides, over reacting to the news - both when markets were falling and recently on the upside with too much optimism. Volatility is likely to continue in the near term, but over the long term, globally a lot of money which has been parked in debt will slowly start moving towards equity as the US and global economy improve.

Indian markets are fairly priced and I am pretty optimistic on the equity markets right now. Also, while the benchmark index is likely to stay in a band, a lot of beaten-down stocks related to infrastructure and cyclicals will see buying interest from investors.