Mumbai: The mood among Indian firms is changing for the better and there is a consensus building for a good set of numbers in the first quarter of fiscal 2012 that ended in June, said K.V. Kamath, chairman of India’s largest largest private sector lender ICICI Bank Ltd.
According to Kamath, also the chairman designate of Infosys Ltd, worries over economic growth that were seen in the last few months are fading.
“I was worried for about a period of last three months or little over three months, but I now see the mood lifting. What is required is some signalling that interest rate increases have peaked” and some assessment that inflation is being controlled, he said on Bloomberg UTV’s Bankers’ Trust programme to be telecast this week.
Kamath’s comments come at a time when industrial lobby groups and analysts are predicting a slowing economy as rising input costs crimp company profits. Investment decisions are being deferred as interest rates rise.
The Reserve Bank of India (RBI) has increased its policy rate by 425 basis points (bps) —from 3.25% to 7.5%—since March 2010, through 10 hikes, making money costlier. One basis point is one-hundredth of a percentage point.
Kamath expects inflation to ease in the next three to six months and said the combination of high growth and high inflation is not a phenomenon to be worried about.
“It’s okay for the time being. Also, given the fact that we have inflation led by a variety of factors, which are not in our control and which may not be sensitive to interest rates,” he said. “The way I look at inflation is that we are a high-growth economy and we are in a transformational stage. If you look at other countries which have gone through this stage, their inflation remained high (through) large cycles of growth.”
According to him, interest rates have peaked or are at least closer to the peak. “I will think they (rates) are almost at the peak. One more hike (is) possible,” if inflation does not come down.
Kamath insisted that despite the worries on physical infrastructure, the growth story for the world’s second fastest growing major economy will continue.
“There is an uncounted part of growth” and “none of our indices seems to be fully appropriate” (to catch that), he said.
“Measures that...record growth don’t seem to be fully accurate and...nobody denies the fact that there is an unaccounted part of the economy. You...are actually sailing past 10%...and the question we really have to ask is are we doing enough to make sure that this growth sustains? I think we are into that momentum and it is very difficult to roll it back. All we have to make sure is that the atmosphere...is not disturbed.”
Last month, the World Bank cut India’s gross domestic product growth forecast to 8% from 8.8%, citing moderation in domestic demand and elevated inflation pressures.
The World Bank’s projection is in line with RBI forecast of 8% for the current fiscal.
Economic growth slowed to a five-quarter low of 7.8% during the January-March period.
Kamath said India’s banking sector as a whole is going through a “very interesting” time with assets growing at 20-25%. “You will see growth happening at a pace that we would not have seen in the past in the banking system. Which means that you are doubling assets every four years,” he said.
Listing the challenges before the banking sector, he said the larger banks in India are prepared on the technology front. “I think banks are gearing up for this kind of a growth so that’s not going to be a challenge, it’s going to be an opportunity. The real challenge is that a migration has been made by many banks from being just working capital lenders to also doing corporate finance, growing their SME (small and medium enterprise) book and building up a retail portfolio,” he said.
He is also optimistic about the health of the corporate sector as Indian firms are deleveraged and healthy and have learnt to invest through organic means rather than borrow and leverage themselves to grow.
Kamath, who will formally take over as chairman of India’s second largest software exporter Infosys in August, said the executive management of the company “has plans for scripting their path as they see things happen and the board’s role is to make sure that it appears to be on the right path and the governance umbrella is appropriate.”
This is based on an interview which will be telecast on Bloomberg UTV on Thursday.