India Inc sees recovery, but concerned on rates

India Inc sees recovery, but concerned on rates
The Financial Express, July 27, 2009, Page 5

fe Bureau, Mumbai

India Inc, including bankers who gathered at the India's Best Banks Awards ceremony on Saturday, are confident about the revival of economic growth without any further stimulus packages but concerned about the possible rate hike in the future.

Speaking exclusively to FE, Naina Lal Kidwai, general manager & country head, HSBC - India, said, "Yes, the economy is showing signs of revival. Various sectors like cement, steel, auto, infrastructure have started showing growth. Our banking system continues to remain strong. A lot of money from banks is getting pumped into sectors like infrastructure and power." However, sectors like SMEs and textile are facing the pain and will need some support.

"We will have to see how fiscal deficit is managed differently. The government is doing a great job in managing the economy. It is also focussing highly on spending.

We will now have to see how credit growth picks up. As of now, liquidity looks intact," she added.

However, when credit off-take starts to pick up, which is expected in another six to eight months' time, the economy will see interest rates start rising, she cautioned.

We may even see a squeeze in liquidity then. Today, we do not think there would be a change in the cash reserve ratio (CRR) or other interest rates. Hence, we don't think there is scope for lending and deposit rates to go further down. Till the time credit growth does not pick up, interest rates will not go up,'' she explained.

The banking industry will also see a lot of banks raising capital during the second half of the year."

Neeraj Swaroop, regional chief executive, CEO, India & South Asia, Standard Chartered Bank said, "There are some positive signals in the economy showing signs of recovery. However, it will still take months to be clear. The government is facing a tough challenge on the current fiscal deficit front and in balancing out the extra liquidity."

Sectors like exports and infrastructure, which have been impacted, will take time to recover, he pointed out. "We don't think there is a need for another stimulus package. The complete effect of the previous stimulus is yet to be seen. On the interest rate front, it is still tough to say if there would be any step taken by the regulator," he observed.

Vishwavir Ahuja, MD & CEO, Bank of America (India), said, "Our economy is still in good shape, as our fundamentals remain intact. There continues to be some triggers for faster growth."

The monetary and fiscal measures taken by the government have proven successful. The banking system looks healthy with the savings and demographics in the economy, he said.

"We do not need another stimulus as our economy is well poised for now. Interest rates will start moving upwards as the economy gets on a faster track." he pointed out.

MV Nair, chairman & managing director, Union Bank of India said, "Interest rates have bottomed out and will remain stable for now. Liquidity is ample in the system. There is no scope for lending rates to go further down. Demand for housing is coming back and there are projects in the pipeline. We anticipate a 20% growth in credit by the end of this year."