Demonetization is going to be good for the economy: Ajay Srinivasan of Aditya Birla Group

The initial impact of the government’s decision to replace high-value banknotes is likely to be slightly more than many people expected because of the time it is taking for the cash to come back into the system, said Ajay Srinivasan, chief executive, financial services at Aditya Birla Group. “Ultimately, this is going to be very good for the economy and for the financial services sector,” Srinivasan said in an interview. Edited excerpts:

What do you think is the impact of demonetization on the economy?
It is early days and therefore we are all kind of trying to figure out what the impact is. Like you said, it has never been done before in this scale; 84-85% of currency notes disappearing from the system is a large shock. My sense is the initial impact is going to be probably slightly more than many people expected because I think it is taking time for the cash to come back into the system. I don’t know how long that is going to last and I think ultimately this is going to be very good for the economy and for the financial services sector in particular because you move money from the informal sector into the formal sector, you get lower rates, you get better taxation, you get a better fiscal deficit so it is very difficult to not think of all the positive benefits that will accrue. I just don’t know how long this adjustment process will take.

Financial services sector, the initial pain appears to be a little more, at least the stock markets are running down many of the non-banking financial services (NBFCs) which were the darlings until now. What are your people on the ground telling you?
At least as of now we have not seen any impact on our NBFC. In the housing side, we have seen a slowdown in logins, we have seen a slowdown in disbursements but a lot of this is just adjusting to things. So, for instance, in life insurance, we have seen a slight d;rop in renewal premiums that we used to collect but that is because we used to get some of the renewal premium in cash and if people don’t have cash in the system, they are going to delay the payment of renewal premiums.

So, some of this in my sense is an adjustment. I think the whole thing about there being a problem with credit and there being a problem that people are reacting to—and the stock market anticipates many things way ahead of time, I am not sure it is actually playing out on the ground as of now. We at least haven’t seen the signs of that so far.

You don’t see a bad loan uptick at least in this and the next quarter?
It could be but I just think it is too early and at least we have not seen anything so far that gives us a sense of that. However, a lot of that is going to be last mile where people have trouble and therefore looking at making their adjustments to their business model. We are not fully retained in the sense in our business model compared to many other players whose prices have adjusted, our model is slightly different and therefore at least as far as our model is concerned, we haven’t seen any impact so far.

Before all that, when are you getting listed? How do we play the Aditya Birla pluses and minuses, the financial services unit was to be listed shortly, now what is the time table?
We are very much in terms of the time table we spoke about when we launched this scheme in August. We said that there will be a process of the merger first of Nuvo into Grasim and then there will be process of a demerger and that demerger we always said was going to happen in April to June of next year. I think we are pretty much on time for that. So, we would get listed between April and June next year.

In a sense therefore you missed the bright period for NBFCs. However, are all the issues resolved in the merger, people were complaining that probably Idea is going to get a lot of the money from the holding company?
We have been interacting with a number of investors since the day that has happened and explaining to them a lot of things that maybe many people did not quite understand at the original stage. So, I think many more people are understanding today what the logic and what the rationale is for what we have done and coming on board.

So no tweaking needed, a little bit?
No.

When does the merger process get over, is there a time for that?
As I said earlier, the merger process would get over by February-March of this year, and the demerger would happen thereafter.

So you expect this fiscal the merger is complete?
That is right.

There is just one more niggling issue on the merger but I have other questions on the demonetization and the markets. Idea, that is a very big part of the merged entity when it is listed, rumours refuse to go away about Idea looking for partners or partners wanting Idea, will we hear something on those lines?
That is something I can’t comment on at all. I don’t have any idea on that.