Mumbai: How the government manages its borrowing and disinvestment programmes will dictate the movement of interest rates, ICICI Bank Ltd managing director and chief executive officer Chanda Kochhar said in an interview. Edited excerpts:
How do you think the 10-year bonds will pan out?
The bond rates would remain range-bound by 20-25 basis points either way. I don’t see them being very volatile either side because there are many factors working on it. First, liquidity within the banking system is very comfortable. I am confident that credit demand would pick up strongly by the second half of this year. Would that necessarily again take interest rates very high up? It may not if we manage the government borrowings and the disinvestment well. We have heard over the weekend that the government borrowings will be managed in a less disruptive manner. Given the quantum of government borrowings that has to be managed, but given also the fact that the Reserve Bank of India balance sheet will go up, the banks’ balance sheets themselves will go up. If we manage that well and the fact that we have a lot of scope on disinvestment, we don’t necessarily need to bring about a lot of burden on the interest rates. So while credit demand will pick up, we have options open to manage the other side. How well we do it is the question and that will determine how the yields move. But a short answer is that it should only be range-bound.
Stable returns: ICICI Bank chief Chanda Kochhar says 10-year bond rates will remain range-bound by 20-25 basis points either way. Abhijit Bhatlekar / Mint
(One basis point is one-hundredth of a percentage point.)
Around 7%, you don’t see it going to 8%?
No, I don’t see it because I see that in the economy we have a lot of scope to manage the disinvestment and the government borrowings much better than what the market is worried about today. If we can do that we may not be able to correct the rates but we can stop them from going up in a volatile manner.
Do you think there is still headroom for banks to cut the prime lending rate (PLR) up until 30 September?
I would think a lot of the cut has already taken place... Banks have cut interest rates thrice in the past six months. From here, I don’t see anything for liquidity to improve further. So I don’t see a scope for cut in interest rates, I would think they would remain stable for some time and then in the second half, after we see the balance between the credit growth pressure, on the one hand, and how we manage the government borrowings and disinvestment, on the other, that will determine the trend of interest rates.
But we are still seeing credit off-take kind of contracting, it could well happen through the slack season until 30 September, so forget PLRs, there is still sub-PLR lending. Companies borrow from the corporate bond market as well as via commercial paper. Do you think those could still see some downside or are you bottomed out as well?
I think we have reached quite stable levels there as well because, all said and done, there is this overhang of what the whole government borrowing programme is going to do. I think we have today reached a stage of stability and I don’t see much correction taking place from here.