Kamath warns of corporate defaults


via Kamath warns of corporate defaults

 

Concerned over the interest rates in ‘high teens’ that could make India a high-cost economy, the Confederation of Indian Industry President K V Kamath on Sunday said that corporate defaults beginning with small and medium enterprises cannot be ruled out.
Besides, infrastructure sector that needs a mammoth $750 billion of investment could be a casualty and affect India’s competitiveness, warned Kamath, saying these issues were high on his agenda for Prime Minister Manmohan Singh’s meeting with corporate leaders tomorrow.
“As of now, we are not seeing big corporates defaulting. But I cannot rule that out, particularly starting with SME sector. (If) We continue to have high interest rates.
 “Clearly, bankers are worried about SMEs and I would worry about them too. You have a situation where they would be most fragile,” Kamath told PTI when asked about apprehensions that major corporate players, including some in the reality sector, have started defaulting.
“It is not just interest rate challenge that we have. There are more challenges such as availability of funding. I am entirely with the Finance Minister and the government when they say banks should lend,” said Kamath, who also heads India’s largest private sector lender ICICI Bank.
He, however, quipped, “the situation on Sunday is that call rates (short-term inter-bank lending rates) have surged to 22 per cent… There is a real fear that we can become a high-cost economy,” he said and pointed out that the CRR cut of 2.5 percentage point in October had already dried up.
While welcoming the RBI’s move yesterday to inject about additional Rs 85,000 crore liquidity, he said, “Although the decision was concrete and welcome, more is needed in case corporate India has to get funds from banks at 3-4 per cent lower rate of interest.” 
Kamath said, “We are actually lucky because corporate India is still in good shape except that there is a little more concern about SME sector… Interest rates are going to be a challenge for them.”
Asked to comment on reports that term-lending bodies like IDFC are charging interest rates up to 24 per cent and can this throw India back to a high-cost situation like the one witnessed in mid-1990s, he said, “The fear is ‘real’…India can become a high-cost economy.”
“The simple reason is that one-year deposit and bulk deposits are still between 11 to 12 per cent. Then you have additions like cost of carrying SLR, CRR and risks in operating costs…on incremental basis, banks’ lending costs itself would be 15 per cent.
“Somebody (term-lending institutions) is borrowing from banks and lending on… While it is not 24 per cent, we are seeing interest rate in high teens. Clearly, at this rate, we are not going to be competitive,” he said.
Kamath said that drying up of liquidity is resulting in corporates not getting money, and if at all, it is at high costs.
Stating that government and RBI have indeed succeeded in their battle to rein in inflation, he went on to add that now it is time to shift focus to growth, which requires releasing of more money into the system and creating an environment where interest rates come down.

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About zyakaira

Investment Banker, 40s, Bangalore This Biopic and this web recreates how one point of view, one person can impact a tremendous economic engine that the world thrives and mis-thrives on. This one has the knowledge and the civil sense , the art of conversation and some good writing to mentor others as powerful and help global managers develop and fine tune their approach on US markets, China, India and the world. Read on here, and let me know what you need. It can be a race for TRPs, a race for new markets and a race to do what is right. I have the pulse of the crisis, the recovery and the market direction and can help you build and refine your strategy as i have helped thousands of managers and multiple global corporations. Of course, it’s more fun if you talk to me. I am in favor of leading this moving of the economic crisis and will partner with you in a soft and subtle way, just the way we both ride to the top. But you can write with us, opine and just reply with aplomb and shine on Twitter , 4 square , Facebook and any other social “choupal” of choice via zyaadakairaada Profile & Portfolio - SocialPicks Different flavours at: http://benchilibowl.wordpress.com http://zyaada.mp

Posted on November 3, 2008, in Bank Stocks, India, Meltdown and tagged , , , , , , , , . Bookmark the permalink. Leave a comment.

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