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Banking News: December 18, 2017
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‘Will
carry forward SBI’s 211-yr-old legacy
with
same level of efficiency, vision like my predecessors’: Rajnish Kumar,
Chairman, SBI
S Kumar, The Pioneer
Published on December 18, 2017
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Mumbai, December 17: State Bank of India
Chairman Rajnish Kumar believes that credit growth and a forward movement on
resolution of stressed assets are his immediate top priorities in the bank.
Kumar, who assumed the charge as Chairman on October 7, 2017, after the
departure of his predecessor Arundhati Bhattacharya, has served in the bank
for more than 37 years having multiple assignments across different
verticals, like large credit, project finance, foreign exchange and retail
banking, along with two overseas assignments.
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Banking News: December 16, 2017
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No MDR
charges on debit card payments
up to
Rs 2,000 for 2 years starting Jan 1
Beena Parmar
The Moneycontrol News
Published on December 15, 2017
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New Delhi, December 15: From
January 1 next year, you will not be charged fees on debit card transactions
up to Rs 2,000 for at least two years. In an effort to boost digital
payments, the Union Cabinet has decided to waive the merchant discount rate
(MDR) applicable on all debit cards, BHIM and UPI transactions up to Rs
2,000. The government will reimburse the same to the banks for a period of
two years, starting January 1, 2018.
“Merchant Discount Rate (MDR) applicable on
all debit card/BHIM UPI/ AePS transactions up to and including a value of Rs
2000 will be borne by government for 2 years with effect from 1 January, 2018
by reimbursing same to the banks,” the Cabinet decided on Friday. "It is
estimated that the MDR to be reimbursed to the banks in respect of
transactions less than Rs 2,000 in value would be Rs.1,050 crore in FY
2018-19 and Rs.1,462 crore in FY 2019-20," the government release said.
As a result of this approval, for all
transactions less than Rs 2000 in value, the consumer and the merchant will
not suffer any additional burden in the form of MDR thereby leading to
greater adoption of digital payment modes for such transactions. Since such
transactions account for sizeable percentage of transaction volume, it will
help to move towards a less cash economy.
A committee comprising Secretary Department
of Financial Services, Secretary Ministry of Electronics & IT and the
CEO, National Payment Corporation of India (NPCI), will look into the
industry cost structure of such transactions which will form the basis to
determine the levels of reimbursement. MDR is the rate charged to
a merchant by a bank for providing debit and credit card services when
payment is made at a merchant point of sale (PoS). In most cases, the charge
is passed on to the customer by the merchant, saying that it eats into his
margin.
Citing this, many people make cash payments
despite having debit cards. Similarly, MDR is charged on payments made to
merchants through BHIM UPI platform and AePS. In order to promote digital
payments, the Reserve Bank of India has earlier come out with differentiated
merchant discount rates (MDR) for debit card transactions, prescribing
separate caps for small and large traders. As per the latest RBI
notification, MDR charges for small merchants with an annual turnover of up
to Rs 20 lakh has been fixed at 0.40 percent with a cap of Rs 200 per
transaction by debit cards through Point of Sale (PoS) machines or online transactions.
For merchants with turnover of over Rs 20
lakh, the MDR cap will be 0.9 percent or Rs 1,000 per transaction, whichever
is lower. Similarly, for accepting QR (quick response) code based acceptance
infrastructure, the MDR will be 10 basis points lower across both merchant
categories.
v For
small businesses, the MDR cap at QR code based infrastructure would stand at
0.30 percent or Rs 200 per transaction, whichever is lower.
v For
other merchants, the MDR cap at QR code based infrastructure will be 0.80
percent or Rs 1,000 per transaction, whichever is lower.
However, most players had been unhappy with
the RBI move. A report by Kotak institutional equities had said, “MDR
reduction: marginally negative for acquirers. The RBI’s move to reduce
merchant discount rates (MDR) for debit card transactions for smaller
merchants and QR-code based transactions will likely bode well for
broad-based and asset-light adoption of cashless modes of transactions in the
medium-term. However, volume is unlikely to make up for the shortfall in
reduction of fees in the short term and hence, the near-term impact would be
marginally negative for a few players like Axis Bank, HDFC Bank, ICICI Bank
and SBI (State Bank of India). Debit card fee is a small but a key area of
growth for most of these.”
In a tweet, Amrish Rau, CEO of PayU, said:
“RBI has tinkered with Debit charges again. The problem is NOT MDR. Capping
of Bank Interchange fees will provide big boost to digital payments.”
Interchange fee is a part of the MDR which is charged by the Issuing bank
(0.5-0.75 percent), Acquirer (0.5-0.25 percent) which is also shared by the
payment provider such as Rupay, Visa and Mastercard.
Debit card usage volume has tripled to 2.4
billion transactions in 2016-17 from around 800 million in 2014-15. The value
of these transactions rose to Rs 3.3 lakh crore from Rs 1.2 lakh crore. RBI
data shows that debit and credit card payments at PoS terminals have
increased from Rs 35,240 crore in November 2016, compared to Rs 47,980 crore
in November 2017.
The UPI and BharatQR have different MDR, so
it will be a challenge for card networks and the NPCI (National payments
Corporation of India) to sort out where the transaction is originating and
charge merchants accordingly. On the UPI, merchants are charged a merchant
discount rate (MDR) of 0.25 percent for payments below Rs 1,000 and 0.65
percent for all other charges.
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Controversial FRDI Bill
With 'Bail-In' Clause, Deferred
The Outlook Online
Published on December 15, 2017
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The so-called "bail-in" clause in the draft
bill has been commented upon by experts as bringing potential harm to
deposits, in the form of savings accounts.
The controversial Financial Resolution and Deposit
Insurance (FRDI) Bill, 2017 with the 'bail-in' clause that allows banks to
use depositors' savings in case it collapses, has been deferred by the
standing committee.
The joint committtee of parliament was supposed to hand
over its report on the bill in the first week of the winter session of
parliament that began today. The committee will now submit its report during
the budget session next year.
The so-called "bail-in" clause in the draft
bill has been commented upon by experts as bringing potential harm to
deposits, in the form of savings accounts.
The FRDI Bill proposes to create a framework for
overseeing financial institutions such as banks, insurance companies,
non-banking financial services (NBFC) companies and stock exchanges in case
of insolvency.
The 'bail-in' clause theoretically allows beleaguered
banks and financial institutions to legally usurp depositors' money in a
desperate bid to stop going bust.
Read Also: Preparing For Cyprus Moment: Centre May
Allow Banks To Use Your Hard-Earned Deposits In Case It Collapses
The move comes after protests against the 'bail-in'
clause despite the finance minister and the prime minister reiterating that
the government is only working to protect the interest of bank customers and
their deposits.
An online petition against the bail-in provision in the
FRDI bill received thousands of signatures even as the finance ministry said
that the proposal, under consideration of a joint parliamentary committee, is
depositor friendly and provides more protection.
Industry chamber Assocham had on Thursday sought
removal of the "bail-in" clause in the draft bill, cautioning that
the trust in the banking system runs the risk of being eroded if the clause
is not done way with.
The FRDI Bill was cleared by the Union Cabinet cleared
in June 2017. It is currently under the consideration of a parliamentary
committee. While the bill when it becomes a law will lead to the birth of a
Resolution Corporation which will exercise control over banks, insurance
companies, and other financial institutions, it contains the hair-raising
'bail-in' clause, already creating panic among bank depositors.
Prime Minister Narendra Modi yesterday said the
government is working to protect interest of bank customers and their
deposits, as he sought to dispel rumours regarding the proposed FRDI Bill.
"The government's assurance notwithstanding,
Sub-section 7 of Section 52 of the proposed law clearly says that the
bail-in, to which depositors have strong objection to, shall not be applicable
to deposits to the extent only covered by insurance," ASSOCHAM had said.
In India, less than a third of bank deposits in value
terms are insured by the Deposit Insurance and Credit Guarantee Corporation
of India (DICGC). If a bank goes bust, the DICGC will pay back the insured
amount to the depositor but that is restricted to just Rs 1 lakh per
depositor per bank. The FRDI Bill is reportedly silent on the extent of
deposits to be guaranteed and that remains a key source of concern.
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Bank unions escalate protest
against proposed FRDI Bill
Avishek Rakshit
The Business Standard
Published on December 16, 2017
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Kolkata, December 15: Major bank unions across the
country have upped their opposition to the proposed Financial Resolution and
Deposit Insurance (FRDI) Bill, first opting for a preliminary depositors'
signature collection campaign with plans to go for a nationwide strike in
case the Bill is tabled in the winter session of the Parliament.
Bank Employee Federation of India (BEFI), the third
largest of the nine bank unions, will be holding a meeting on December 17 in
Chennai to plan its future course of action post which an all-union meeting
will be held to form a united forum to oppose the Bill. "All
the bank unions will be meeting to discuss the road ahead. In case the
government pushes to pass the Bill in the winter session of the Parliament,
we can go on strike", Pradip Biswas, general secretary of BEFI told
Business Standard.
Although various bank trade unions are opposing the
Bill, there is no united opposition till now and the proposed inter-union
meeting is set to arrive at a joint opposition movement to the
Bill. "Soon a joint forum, comprising of all the unions will
be formed to mount opposition", Sanjay Das, assistant general secretary
— West Bengal at All India Bank Officers' Confederation (AIBOC), told this
newspaper.
All India Bank Employees Association (AIBEA), National
Confederation of Bank Employees (NCBE), BEFI and AIBOC have embarked upon a
depositor's signature collection campaign to stall the FRDI Bill. Das claimed
that already over two lakh depositors have signed the petition to stall the
Bill, which has been sent to the Centre, and another one lakh people have
signed an online petition. Additionally, over WhatsApp, petitions with links
have been sent to the Prime Minister's Office, Reserve Bank of India and the
union Finance Ministry.
The original copy of signatures collected by BEFI will
be sent to Sumitra Mahajan, speaker in the Lok Sabha. The signature campaign
also asks the government to make public the names of the loan defaulters
every six months, ensure accountability of bank executives for bad loans and
amendment in the loan recovery procedure. Additionally, unions are also
demanding that the government declares wilful and deliberate defaulters as
criminals.
It has instructed its state-level units to organise
demonstrations and rallies to show its discontent with the Bill and garner
public support. While such a demonstration is already underway on Friday in
Kerala, a rally will be organised in Kolkata on December 21. According to the
unions, the FRDI Bill puts depositors at risk and they stand a chance to lose
their money with the banks.
"The FRDI Bill supersedes all previous Acts and
there is no need for this Bill when we already have proper regulators like
the RBI and the Insurance Regulatory and Development Authority", Das
told this business daily, adding that the FRDA Bill will also snatch away
workers' and companies' rights to appeal to the Courts. A circular issued by
the unions states that the FRDI Bill proposes to empower the Resolution Corporation
to use people's saving to the tune of more than Rs. 100 lakh crore to be used
as a bail-in packages for corporate defaulters to the tune of Rs 11 lakh
crore.
Bank employees are of the opinion that with the bail-in
proposal in place, not only deposits can be endangered as the package finally
may not work out, but the banks will also try to regain their financial
health by using money parked by the depositors with
them. Recently, CPI-M politburo member Surjya Kanta Mishra, also
the former leader of opposition in the West Bengal Assembly, said, "The
government wants to come up with a law to use the depositors' money to
improve the banks' financial health, but refuses to take any action against
the guilty corporates".
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Bail-in:
Here's why SBI report says small
depositors
have nothing to worry about
The Moneycontrol News
Published on December 15, 2017
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Mumbai, December 15: There has been considerable
disquiet over the draft Financial Resolution and Deposit Insurance (FRDI)
Bill. Industry chamber Assocham has also jumped into the ‘bail-in’ debate on
FRDI, cautioning the government that the trust in the banking system runs the
risk of being eroded if the clause is not done away with.
The industry body, however, seems to be speaking in a
different voice than the captains of the banking industry. In a recent
banking conference, CEOs of some of the top banks in the country assured
people that deposits were not threatened by the new FRDI Bill, as it was an
improvement over the present system.
In fact, a report by Soumya Kanti Ghosh, Chief Economic
Adviser, SBI has said that the FRDI Bill will be a win-win for all.
In a report titled ‘Some Fallacies Regarding FRDI’
Ghosh toes the government line saying that the FRDI Bill in India would be
more depositor-friendly than many other jurisdictions around the world.
The report goes on the say that the statutory bail-in
power is intended to achieve a prompt re-capitalization and restructuring of
the distressed firm. The bail-in strategy would help to mitigate the systemic
risks associated with disorderly liquidations, reduce deleveraging pressures,
and preserve asset values that might otherwise be lost in a liquidation.
Ghosh says that India’s bail-in is similar to the strategies adopted by EU
countries like Cyprus and Greece.
Commenting on India’s bail-in, the report says that the
risk is less in the proposed bill. Currently, Deposit Insurance and Credit
Guarantee Corporation (DICGC) provides deposit insurance of up to Rs 1 lakh
and rest of amount is forfeited in the event of a bank failure. While the
FRDI Bill has not specified the insured amount yet, it would definitely be
higher than the current limit of Rs 1 lakh.
It is also likely because the amount insured has moved
up from Rs 1,500 in 1962 to Rs 1 lakh in 1993 but since then there has been
no change, despite a sharp rise in deposits.
Ghosh uses data on Cross Country Deposit insurance
coverage limit to prove his point. The data shows that deposit insurance
coverage in India is one of the lowest at USD 1,508 as compared to a per
capita income of USD 1,709. The coverage of 0.9 times is much lower than 7.4
times provided in Brazil and 2.2 times in Russia.
In India, says the report, around 67 percent of all
term deposits are less than Rs 1 lakh. These deposits account for 8.6 percent
of all deposits. In other words, the smaller depositors will not be affected
in case of a bank going under. The bulk of the deposits in value terms –
around 55 percent -- are those that are held by high-value depositors in the
range of Rs 15 lakh and above. In number terms, these accounts are only 1.3
percent of all term deposits.
The FRDI Bill establishes a Resolution Corporation
which will monitor the financial firms such as banks, insurance companies,
stock exchanges, and depositories and pre-empt their failure, and resolve or
liquidate them in case of failure.
During volatile times as is the present case, all
financial asset classes are interlinked not only in India but globally; the
bill helps address an important risk and timely intervention can help prevent
the risk from spreading.
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Cheque
Bounce:
Nod to
amend Negotiable Instruments Act
The Business Line
Published on December 16, 2017
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New Delhi, December 15: A Bill to
amend the Negotiable Instruments Act, 1881, to provide for interim
compensation to the payee of a cheque, both at the trial stage and at the
appellate stage, got the go-ahead from the Cabinet on Friday.
The amendment will allow a court to order
interim compensation to the payee of a cheque, a part of the amount at the
trial stage itself. If the drawer is acquitted, the court may direct the
payee to repay the amount paid as interim compensation with interest.
Similarly, appellate courts will be enabled
to order the appellant to deposit a part of the compensation awarded by the
trial court at the time of filing appeal.
A government official said this is being
done to help trade and commerce, particularly the MSME sector, and order to
increase the credibility of the cheque as a financial instrument.
The move follows representations from the
public and the trading community regarding the injustice caused to payees as
a result of pendency of cheque dishonour cases.
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Banks
want to revive trade
&
warehouse insurance
Saloni Shukla
The Economic Times
Published on December 16, 2017
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Mumbai, December 15: Indian banks are
lobbying with the Reserve Bank of India and the insurance regulator to revive
trade and warehouse insurance as the rise of digital tracking and traceable
payments has become a lot more robust under TReDS, unlike in the past where
inventories could not be tracked and malpractices were rampant in the absence
of tech-based tracking.
“We have represented to the RBI that trade
insurance should be made available to banks as most of the factoring is done
by banks, and we are taking the credit risk when financing lower-rated
MSMEs,” said a banker who did not wish to be identified.
RBI did not respond to an email query
seeking its response to the story. TReDS is an online electronic
institutional mechanism which facilitates the financing of trade receivables
of MSMEs through multiple financiers. The platform enables discounting of
invoices of MSME sellers against large buyers through an auction mechanism
that ensures prompt realisation of trade receivables at competitive market
rates.
Banks, till a few years ago, were eligible
to get an insurance cover for any money lent to trade and trade receivables,
but it was later rolled back after several instances of mis-selling, and
bogus bills were brought to Irdai notice.
“If Irdai can extend the insurance cover for
trade insurance to banks, it will help us in a big way,” said Kalyan Basu,
MD, Invoicemart. “Today, banks want collateral for loans which is a huge
impediment for MSME finance. Trade insurance can be taken by MSMEs and
buyers, but it is not assignable... if the bank is taking a trade exposure
and the insurance cover is not assigned to the bank, then it makes no sense.”
“Today, banks are only taking risks on
select corporates. In due course, this can be expanded to corporates with low
rating and for those corporates this insurance risk will play a substantial
role,” said Sundeep Mohindru, founder, M1 Exchange.
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Big
data, AI, machine-learning
shaping
future of jobs: Cognizant
The Business Line
Published on December 16, 2017
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Chennai, December
15: Technologies such as digital, big data, Artificial
Intelligence, automation and machine learning are increasingly shaping future
of work and jobs. Despite concerns about humans losing their jobs to
automation, the fact remains that future of jobs has never been brighter,
according to Manish Bahl, Senior Director, Centre for the Future of Work,
Cognizant Technology Solutions.
Work has always changed, and will continue
to change. While work that is tedious and repetitive will get automated,
machines will always need humans. It would be naïve to underestimate human
imagination or ingenuity. While technology will upgrade all aspects of
society, it will not only solve but also create new problems that would
require humans, he said in a commentary on trends for 2018 issued by
Cognizant. Recent media reports said there have been many job loss in top
software companies due to automation and digital.
Based on major macroeconomic, political,
demographic, societal, cultural, business and technology trends, it
envisioned a set of 21 ‘unimaginable’ jobs that would provide sustainable
employment to scores of people in the coming decade. And the foundation may
well be laid in 2018.
Job descriptions such as walker/talker,
fitness commitment counsellor, digital tailor, ethical sourcing manager, AI
business development manager and man-machine teaming manager are among the
low-to-mid technology jobs that are expected to be on the HR’s radar in the
next five years.
All these jobs would share the common theme
of Coaching, Caring and Connecting: Coaching being the human ability to help
others get better at life; Caring being the human endeavour of improving
people’s health; and Connecting being the intellectual leverage only humans
can bring in connecting man with machine, traditional with shadow IT,
physical with virtual, and most importantly, commerce with ethics, he said in
the commentary.
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Mapping
India’s Economic Future:
Jobs,
Growth and Banking Reform
The Knowledge@Wharton
Published on December 8, 2017
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Manish Sabharwal is co-founder and executive
chairman of TeamLease Services, one of India’s leading human resource service
companies. He is also on the board of the Reserve Bank of India. He spoke
with Knowledge@Wharton recently about a wide range of topics affecting
India’s economic outlook, which is shaped by the complex forces of regulatory
reforms, formalization of jobs (versus informal jobs), increasing technology
and shifting traditions. Drawing from his education and experience, Sabharwal
shared his view of where India is headed. An edited transcript of the
conversation follows.
Knowledge@Wharton: Does India have a jobs
problem or a wage problem? Why does that distinction matter?
Manish Sabharwal: I think the diagnosis is
very important because if you think the problem is jobs, you’ll throw money
from helicopters and bust the fiscal system. If you think the problem is
wages, then you need to think about productivity. I don’t think India has a
jobs problem. I think we have a wages problem.
Most people who want a job have a job, they
just don’t have the wages they want. Our official unemployment rate of 4.9%
is not a fudge. If you think the problem is jobs, you’ll do that make-work program
like NREGA (India’s National Rural Employment Guarantee Act), which converted
a high-growth, low-inflation economy into a low-growth, high-inflation
economy between 2004 and 2014. But if you think the problem is formalization,
you will recognize that a 10-year plan is not 10 one-year plans and do
formalization, industrialization, urbanization, financialisation and human
capital. The structural reform of the Indian economy was long overdue. We
were stuck in a low-level equilibrium. So, I think the problem is wages. The
only solution is productivity.
Knowledge@Wharton: The number of formal
jobs in India is often underestimated. What’s a more realistic way for the
formalization process?
Sabharwal: I think the number that goes
around in people’s heads is India is 90% informal employment. I think it’s
about 75% because if you take survey data and administrative data, you get
different answers. But the most important thing is survey data is quite
unreliable.
I just was part of a committee in India that
looked at labor market data. A total of 27% of Indians say they work for an
employer with more than nine employees. But only 1.5% of employers say they
have more than nine employees. This is not a reconciliation problem. This is
an existential sort of question. If you say that we have to get our survey
data better, let’s look at social security, let’s look at health care
insurance, let’s look at government employment, let’s look at pensions. That
number is about 100 million to 125 million. So, 20% to 25% of the labor
force, maybe, is in the formal sector.
Knowledge@Wharton: How does the labour
market need to be reformed to keep increasing the number of formal jobs in
India?
Sabharwal: I think you have to come at it
from the demand side. India has 63 million enterprises. Twelve million of
them don’t have an office. Twelve million work from home. Only 8.5 million
pay the mandated indirect GST (Goods and Services Tax). Only 1.3 million pay
the mandated social security. Most tragically, there are only 19,000
companies in India with a paid-up capital of more than $1.5 million.
Sixty-three million enterprises means nothing if it translates to 19,000.
I think this sort of sense of humour about
the rule of law, which has encouraged this massive informal sector that
doesn’t pay the right wages, has to go. That’s why you have to look at
bankruptcy laws, which have been passed in the last year; the GST, which was
passed a few months ago; the demonetisation, which was done 12 months ago;
the real estate law, which was passed; the ease of doing business ranking,
which jumped 30 ranks recently. All of this is connected. People are not
given credit for having a plan. But the only way you would formalize India is
by making regulatory arbitrage difficult.
Knowledge@Wharton: You wrote an article
on how demonetization was good for job creation. Can you explain your point
of view?
Sabharwal: The informality of the Indian
economy has been encouraged by various causes. But the excess use of cash
corruption was an important part of that, and the lack of financialisation.
One year after demonetisation, we have concluded that there’s $50 billion
extra on a daily basis in the banking system. If you take a six multiplier,
that could be $300 billion in new bank loans. We have about $50 billion of
new financial assets…. Gold and real estate, which are really [ineffective]
savings instruments from a political and an economic perspective, are down.
The biggest upside of demonetisation has been digitisation. There were 0.1
million transactions per month on our mobile platform. Now it’s up to 73
million a month. In one year, we have gone from 0.1 million to 73 million,
and we’re just getting started with that.
But I think the biggest upside for
demonetisation has been ending the sense of humour about the rule of law,
that you can get away with [using] cash. It doesn’t matter how the law is
written, how it’s interpreted, practiced and enforced. If we increase the
costs of informality and reduce the costs of formality, that will put India
on that trajectory for higher productivity, higher formal jobs, higher wages,
and put poverty in the museum that it belongs.
In political imagination, it’s easier to
think about fiscal policy or monetary policy. But I think structural reform
was so overdue in India. We’ve had a lot of disruption. This is a short-term
pain, we will acknowledge. But I think it’s worth the long-term gain.
Knowledge@Wharton: When demonetisation
happened, there was a piece in The Economist titled “The Dire Consequences of
India’s Demonetisation Initiative.” They described it as a bad idea, badly
executed. One year on, how do you and others in India feel about
demonetisation? What could have been done differently?
Sabharwal: The Economist has not been not a
great friend of India in the last few years. I don’t think they have found
anything right about what’s going on in India. I’ve chatted with them about
it. But my sense is that the Indian state’s capability of execution is quite
low. Traditionally, the brain was not connected to the backbone. That has
been fixed. But now the backbones are not connected to the hands and legs.
The last mile of the Indian state, whether it is the taxation system or the
inspectors or the banks, have human capital that has diminished so much over
the last 10 years. They have so under-invested in technology. India’s scale
means their processes have not kept up. If you traditionally take an
operations view of any company, people, process and technology are all
lacking in the Indian state.
My sense is the biggest lessons of
demonetisation are we need civil service reform. We cannot have these
permanent, generalist civil service. They are unspecialised. They’re not
ready for India’s scale while the country is already moving faster than them.
The private sector’s moving faster than them. The government has an execution
deficit, the private sector has a trust deficit, and non-for-profits have a
scale deficit. But the government execution deficit showed up in both the GST
transition and the demonetisation, which doesn’t attack the reasons that it
should be done. It just tells us that we need to move much faster on civil
service reform than we thought we did.
Knowledge@Wharton: What kind of civil
service reform is most urgent?
Sabharwal: Oh, just a fear of falling and a
hope of rising. There is no performance management. Today, 98% of Indian
civil servants are ranked outstanding. That’s mathematically impossible for
everybody to be above average. I think we need punishment and reward, more
specialization, younger people getting top jobs. Right now, you can’t be
secretary in the government unless you’re 58 years old. Adopting the colonel
threshold of the army, where if you’re not shortlisted for promotion, you
retire at 50. I think a forced curve, so you can’t rank 98%, is needed. RBI
is the first public institution that has now adopted a forced curve. It’s
20/20/60, so you can’t rank everybody outstanding. I think civil service
reform is largely around performance management, specialization and tenure.
Knowledge@Wharton: The other thing one
often hears in the context of demonetisation is the impact it has had on
digital payments. How do you see the future of digital payments in India?
Sabharwal: We all have China envy, right? I
think what China has done in the last 10 years is remarkable. It would have
been a huge gift to India’s poor if we had figured that out. Because now
there is the JAM trinity — the Jan-Dhan millions of accounts that were opened
up; Aadhaar, which is India’s biometric program; and mobile penetration is
now reaching almost 700 million. India is finally getting to critical mass
with the plumbing for digital payments
Demonetisation was a shock to the system of
cash and a huge rocket for digitisation. I think that the real time gross
settlement, or the real time debit/credit, which most advanced economies
don’t have, is possible because of biometrics Aadhaar and the mobile phone. I
think India can skip the learning, and I think that that will happen over the
next six months.
I think Visa, MasterCard and Discover will
not be around five years from now in India because we are moving payments to
marginal cost. The [way these] guys have built their business, their costs do
not reflect the cost of a digital transaction. Given our vision that payments
is a very important part of reducing poverty, financial inclusion, financial
literacy and the stuff that you’re doing at Knowledge@Wharton also, it’s
heavily needed in India. But the first stage of that is just bringing
payments down to marginal cost.
Knowledge@Wharton: The other aspect of
digital currencies that people are talking about is the rise of
cryptocurrencies. From the RBI’s perspective, how does the emergence of
cryptocurrencies affect the central bank’s ability to direct monetary policy?
Does the RBI have a perspective on this?
Sabharwal: I think we’re still forming the
view on it. It’s still early to say what the impact of Bitcoin is, especially
after it was 30% down in one week. For many of the people who were so
extrapolating its growth as a store of value, something that can go down 30%
is not going to work. It can then be viewed as a commodity. It can be viewed
as a speculative instrument. But there was a lot of marketing going on of
Bitcoin as a store of value. You can’t have 30% down in a week for a store of
value. So, I think it’s probably early for us.
I think all of us recognize that
cryptocurrencies matter, or some form of digitisation of currencies will
happen. I guess we just don’t know how right now. Central banks must be
conservative institutions. The challenge is being open to innovation,
competition and the upsides of that while still maintaining stability. We are
experimenting, thinking about our own cryptocurrency, which may or may not be
the right thing to do. But I just say it’s probably early to have big winners
or losers.
Knowledge@Wharton: Are you thinking about
something like what’s happening in Japan, where some of the leading Japanese
banks have come together to create the J Coin?
Sabharwal: Yes. We’ve only done that in
cards. We’ve RuPay, which is a competition to Visa, but it’s a purely
domestic card with much lower cost of transactions. Yes, it’s the same way
that Japan is thinking about it. But I think it’s early to decide whether
that’s the right path to take. I think one big change in India over the last
few years is we don’t have to do it ourselves. But we also recognize you
don’t have to be Western to be modern. I think we can figure out some things.
And technology is home turf for India. There’s a lot of fintech for the world
that is coming out of India, which hopefully we can use for India.
Knowledge@Wharton: I wanted to end with a
couple of questions about TeamLease. A few years ago, you said the big
challenge in India was not so much unemployment as employability. How has
TeamLease progressed along those lines, especially since you went public
about a year ago?
Sabharwal: We’ve hired somebody every five
minutes for the last five years, but we’ve only hired 5% of the kids who came
to us for a job. That is not only bad business, it breaks my heart. That’s
why we started the industry’s first skill university. Two years ago is when
it fully went live. Now we have 40,000 students because it prays to one god,
which is employers.
Only 5% of my kids are on campus. The
balance are in apprenticeship or online. And only 5% do a degree. But 100%
have the ability to take that three-month certificate as an opening balance
for a two-year associate degree. And I think degrees matter. The option to go
all the way to there. Wharton is a good place to be at. It’s a better place
to be from. The fundamental value is being from Wharton. I think it’s
patronizing to say vocational training is usually for other people’s
children, it’s not for our children. We have to give people the option. I
think India has made a lot of progress in education and skills by allowing
things like TeamLease Skills University, which were not allowed a few years
ago, to create the space for innovation and thinks like that.
About TeamLease as a public company,
everybody had scared me. “You’ll become quarter to quarter. You’ll start
thinking short term.” But so far, it’s been an interesting experience with
some upsides. It’s much easier to attract talent as a listed company. It’s
much easier to do mergers and acquisitions as a listed company. And most
interestingly, it’s much easier to hold my internal people accountable
because the market tells us what our goals are and what we’re being measured
by, as opposed to, for the last 15 years, just me crowing about, “We need to
do 25% growth.” Now the market tells us they want 25% growth.
I think being public has been an interesting
experience. People [complain] about the problems of being a big, public
company but I’ve never met a small company that doesn’t want to be big. And
I’ve never met a private company that, some day, doesn’t want to be public if
you want to really scale. TeamLease has a real shot at being three things. We
can be India’s largest private-sector employer, India’s largest private
university, and maybe even the world’s largest staffing company by number of
employees. If I have 5% of India’s market, I’ll be larger than Adecco just
because we have 1.3 billion people in India. I think India already has more
people than China.
Knowledge@Wharton: Where do you think the
biggest growth opportunities for TeamLease will come from in the next two
years? And what are the biggest risks you see in following that strategy?
Sabharwal: We are a child of domestic
consumption. The fastest-growing segment of India’s jobs are sales, customer
service and logistics. China’s farm-to-non-farm transition happened to
factories. India’s farm to non-farm is happening to sales, not even to
services. Domestic consumption is reaching critical mass. India doesn’t have
the same manufacturing opportunity that China had in 1978. They got a 30-year
super cycle of global growth, global openness to trade and global
deconstruction of manufacturing supply chains. That doesn’t mean we should
give up on manufacturing. But I think services, sales and customer service is
our biggest focus. The biggest risk for us is just execution. My branding
constraint is not market or product, it is just not being able to keep up
with growth.
You know, my favourite quote is from
American politician Mario Cuomo. He says, “We politicians campaign in poetry,
but we govern in prose.” For entrepreneurs, our business plan is in poetry,
and we execute in prose. Our biggest planning constraint is prose. It is IT
systems that scale up to handle 3,00,000 calls and emails a month, which we
get. It is processes that allow huge amounts of money to come in and leave
every month. Just the technology to keep up with that is going to be our
challenge.
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