Interest rates need to be corrected: ICICI Chief

Bangalore, Nov 1: ICICI Bank Managing Director and CEO K V Kamath today said that the interest rates had to be corrected to improve the credit-off take that had shown a decreasing tendency due to double-digit lending rates.

Speaking to reporters on the sidelines of the 15th CII Quality Summit here, he maintained that the interest rates needed to be corrected downwards for the simple reason that there was liquidity in the system. The Banks and financial services had been cautious in not bringing down the interest rates due to inflationary tendencies.

"I will still maintain that interest rates need to be corrected.

Domestic liquidity flows are so strong that interest rates will tend to probably correct in south direction. It is too early to call. So let's wait and see," he felt.

Asked whether there would be a cut in depository rates, he said the liquidity flows would see bankers start adjusting deposit rates downwards. It would be a signal for correcting lending rates as well. "Let's take stock and see what happens during the next two to four weeks. I think we will see some action. There has been a hike in CRR that had gone up from 6.5 to 7.5 per cent. I am not hearing any Banker talk of increase in interest rate. Let me see where do we find equilibrium," he added.

Mr Kamath said the credit off-take was tepid during the first half as consumer credit was 'clearly slack'. The consumer credit was growing between five to 10 per cent, as against 30 to 40 per cent over the last five years. This was where the real slackness was as consumer credit business was no longer a small business, he added. "Last year probably overall consumer credit was Rs 200,000 to 250,000 crore, growing at 30 per cent. If that was growing at the same rate imagine that could have been a huge driver for credit growth. But this has turned slack," he added.

This was in tune with the RBI initiative, which had decided to cap the credit off take between 20-24 per cent this year.

He said the corporate sector had been flush with its own cash flows and a large part of its profitability was driven by their cash flows. So as long as their cash flow remained good, they would invest by themselves. "This is a good news for India but may not be so good news for the banks," he felt.

To offset the slowdown in consumer credit ICICI, the largest private sector Bank in India, was moving over to international banking where it had a very strong corporate finance business as project finance company. "We have activated this to be strongly back in the business. We have balanced our portfolio well," he added. UNI