India Is Privatising Banks By “Malign Neglect”: Morgan Stanley’s Ruchir Sharma
Morgan Stanley’s Ruchir Sharma on India’s biggest shortcoming and his biggest fear.
India’s inability to fix its banking sector problems has been its “single biggest shortcoming” according to Ruchir Sharma, head of Emerging Markets and chief global strategist at Morgan Stanley Investment Management.
Speaking at a News 18 event, Sharma listed three reasons for why India has not been able to fully participate in the massive global economic revival witnessed over the past two years. Demonetisation, GST implementations issues and a troubled banking sector.
“If you look at all the major economies in the world, when they went through some sort of a banking crisis, until the banking system was fixed, it was very difficult for them to get back to full potential,” he said.
In India two-thirds of assets are with public sector banks. This is the highest of any democratic country in the world. The average across emerging markets is about one-third. Every country needs a public sector to meet some social objectives. But there is no country like India where the figure is so lopsided.Ruchir Sharma, Head of Emerging Markets and chief global strategist, Morgan Stanley Investment Management (To News 18)
Commenting on the debate around whether India should privatise government-owned banks, Sharma pointed out that privatisation is already underway as all incremental financial activity is happening through private sector banks, whether its trade finance, credit cards or retail banking.
So what India is seeing is privatisation by malign neglect. It’s not happening explicitly. But the banking system is being privatised. And the privatisation is happening at a huge cost. The public sector banks are not only being destroyed in value but it’s also choking the economic recovery.Ruchir Sharma, Head of Emerging Markets and chief global strategist, Morgan Stanley Investment Management (To News 18)
Sharma also raised concerns about “regulatory overkill”. And while he did not detail specific instances, he listed some side effects.
Big Will Get Bigger: Access to credit will get more and more directed towards big companies with established credits, said Sharma. This is a global problem that has been accentuated in India, he added.
Exiting Domestic Investors: Sharma mentioned that 23,000 millionaires have left India since 2014. Last year 7,000 millionaires left the country, twice more than in the previous year, he noted. While in absolute terms this is behind China but as a share of total millionaires, Sharma said, this was the largest of any major nation in the world. While some may attribute this to an anti-corruption drive, it also amounts to the loss of domestic investors. Foreign investment is important but its domestic investors that make a nation, Sharma said.
During the conversation he reiterated his long held view that India is a country that consistently disappoints optimists and pessimists.