Tuesday, July 26, 2011


In an interview with ET Now,Srinivasan Varadarajan, Executive Director,Axis Bank, shares his views on thecredit policy. Excerpts:
In just less than three months you have seen the repo rate go up by 125 bps that is possibly the highest increase in the repo rate that we have seen. Now what do you believe that is going to do for you in terms of credit demand because it is fairly clear that you will at once again have to increase lending rates. TheRBI talking yesterday about the fact that credit growth needs to moderate further from the initial growth projection of 19% that it had stated on the 3rd of May, how are you seeing credit demand playing out over the course of the next year?

As you said the first quarter itself was much slower than the previous quarter in terms of overall credit demand that was reflected in the numbers too. So clearly with this aggressive rate hike in terms of 50 bps, I think with the banks likely to increase lending rates as cost of funds goes up, it is possible that credit demand will slow down further. And that is something which is likely to happen as we go into the next couple of quarters. One thing in terms of the 50 bps rate hike itself is concerned, I think the end state in terms of where RBI would stop is something basically going to be data driven, but the faster the rate hikes happened the quicker we will get there.

With the RBI they have cut the FY12 bank credit growth projection to 18% from the previous 19% this is any which way slowdown from the earlier 22%, how does that impact you right now?

As I said in terms of pipeline demand it has been slower in the first quarter and that is reflected in the non-food credit numbers. Going forward with this aggressive rate hike and possibly tight liquidity conditions prevailing that would anyway would have come down in terms of overall demand and what RBI is trying to calibrate is what they expect to see on the back of these rate hikes. So I would think credit demand as RBI has projected it would be slower than what we saw in the first quarter and overall bank credit demand accordingly would be 18%, our base projecting. And we need to see in terms of the lending rate rises over the course of the year and how it sort of flows through the system.

If at all this continues and there is an expectation that the RBI has pointed that out as well that there will be future rate hikes, from a corporate stand point corporate borrowings implications on the same?

The corporates have been waiting and watching in terms of overall climate outside of India, it has been fairly uncertain and fairly volatile. Even within India in terms of overall real interest rates clearly are not so high and therefore corporate investment should not slacken. I think the level of interest rates to play role in terms of the mindset of the corporate and as the level of interest rates in terms of absolute level continues to inch higher or go higher quite sharply. Corporate is going to wait and watch and therefore investment demand is likely to slow.

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