‘Our bet on India is long term’: DBS chief at HT-MintAsia Leadership Summit

In Asia, a nominal GDP growth still looks like 5-6%, compared to 2%, or less, in other parts of the world. Gupta said the Asia growth story has legs based on its secular drivers and its own demand.

India is currently witnessing the politico-economic effects of shifting too far to the left, said DBS Bank CEO Piyush Gupta at the HT-MintAsia Leadership Summit in Singapore on Friday.

Piyush Gupta, Chief Executive Officer of DBS Group, addresses the audience during the HT MintAsia Leadership Summit, in Singapore, on Friday(HT Photos)

“India’s problem of the recent past is the problem of shifting far left,” Gupta said. “It gave (Prime Minister Narendra) Modi a dramatic new mandate in the polls, but it killed business confidence, ruined animal spirits, and ended up killing the goose that allows you to distribute the goodies. It is going to be difficult to determine how much you need to shift to the Left.”

However, DBS continues to remain bullish about the India market.

“Our bet on India is long-term… I think this will be one of the exponential curves. It is going to be slow and take a long time, but we’re optimistic about what we can do as an international company. Today, we are the fourth largest foreign bank in the country. But I’m hopeful that over the next five to seven years, we will be a much bigger player in India,” Gupta said.

Asia now the world’s marketplace

In Asia, a nominal GDP growth still looks like 5-6%, compared to 2%, or less, in other parts of the world. Gupta said the Asia growth story has legs based on its secular drivers and its own demand.

“Asia today is no longer the factory of the world, it is the marketplace. The reality is that Asia’s middle class is consuming - be it the streets in Bangkok and Jakarta and Beijing, New Delhi, Mumbai, you can see that the people in the big cities have spending power,” he said.

Asia is also seeing massive wealth creation at a rapid pace. In the next four years, there will be 1,000 billionaires in the region, which is now producing more billionaires than anywhere else in the world.

“When Alibaba did their 9/11 sale last year, in one single day, they generated $42 billion of sales. So the idea of Asia relying on a buying US and Europe is out of time. Asia is generating its own demand,” Gupta added.

Huge infrastructure investments – “this is like Marshall Plan for Europe in the 1950s on steroids,” Gupta said – and growing intra-regional trade is also propelling the Asia growth story.

The other weapons in Asia’s arsenal are its fast-paced digitisation and its young demographics. “The average age in Asia is 30, it is 39 in the US and 43 in Europe. It is a young Asia, it’s a digitally native Asia. It is creating a lot more economic activity and new business models on top of that,” the banker said.

But there remain challenges, with the most obvious one being cyclical.

“There are headwinds to growth. I think you might even see a recession, but certainly you’re going to see a sharp slowdown. Some of it is sentiment driven because of China and the trade tensions [with the US], but certainly to a large extent, it is driven by deleveraging in countries like China and India and [this] deleveraging is deliberate,” Gupta said.

In India, the deleveraging is largely driven by the high non-performing loan (NPL) ratio of banks and liquidity problems of NBFCs.

“I still think that the high degree of corporate leverage in the region is something to worry about. I don’t think Asia will go through a 1998 situation - Asia is far more resilient. But there will be some significant headwinds to growth over the next year or so,” Gupta said.

Global geopolitics to be a game changer

“Asia has prospered in the last 50 years because of a benign geopolitical environment… I think the old economic model that we’ve lived with for 67 years is changing,” the DBS Bank chief said.

Along with the changes in geopolitical dynamics around the world, technology and artificial intelligence, as a component of technology, will cause more disruption.

“Think of the number of jobs Apple and Google create compared to the jobs that General Electric created, it is already a fraction. And if you add technology and AI on top of that, jobs and wages are going to be challenging. On the other side, we’re living much longer. And therefore, the need for pension, and more expensive healthcare system means that requirement for money that one wants to retire with has increased,” he pointed out.

The ensuing economic shift could see either wages go up or prices come down so that everything becomes free “as is happening with Mukesh Ambani and Jio,” Gupta said.

He predicts a global shift to the left as governments respond to these changes with bigger social safety nets, universal basic income or higher taxes.

“I think this is a phenomenon you all need to be prepared for. Taxes are going up everywhere whether you like it or not. This is the reality. Economics is going to shift left – [the question is] how much left does it shift. If you don’t shift left enough, you get Hong Kong, and if you shift too far left, you get India,” Gupta said.

Role of banks

Banks will continue to play an important role against this backdrop but banking, as we know it, stands to be disrupted by technology such as blockchain and AI.

“Whether we in Asia allow [technology] to be a game changer or whether nationalization internationalization comes in is a different story, but I think fundamentally our industry is going to have to change to be able to deal with the problems and the opportunities in the coming decade,” Gupta said.

His advice – banks need to act like a technology company. “Unless you’re willing to shed your industry stereotype, and really start thinking like a tech firm, you will not be willing to change,” he added.