The Hindu Business Line : Further rate hike will hit profitability: Kamath

Hyderabad, July 16 Any further hike in interest rates to control inflation will hit corporate profitability, according to Mr K.V. Kamath, Managing Director and Chief Executive Officer of ICICI Bank Ltd.

Responding to queries at a media conference organised by the Confederation of Indian Industry (CII) here on Wednesday, Mr Kamath, who is also President of CII, said: “Further hike in rates could be a pain for everybody.”

It was, however, for the policy makers to take a call on rate in the ensuing RBI’s Credit Policy in the last week of this month, he said adding that a ‘conservative approach’ to arrest inflation might be good as long as the inflation did not turn into a ‘triple digit figure’.

Inflation impact

On the impact of inflation and high interest rates on the banks in view of declining margins of some banks in the first quarter (QoQ), Mr Kamath said banks should tailor their response as per the state of economy to ensure profitability.

“Over the last 10-12 years, banks have cleaned themselves and now they have to take advantage of over all growth momentum,” he said.

On the crisis in segments such as credit cards and home loans globally, Mr Kamath said there should be no impact on India. “Take for example, home loans in India are mainly by the first-buyers of a house that will stay on,” he explained.

GDP growth

Earlier, presenting the CII’s outlook on economy and industry, Mr Kamath said the GDP growth for 2008-09 would be around 8 per cent. “We need to be in an optimistic mode about growth. Though there are challenges in the form of inflation and global oil prices, the $700-billion investment pipeline, most of which is in infrastructure, indicates strong financial fundamentals,” he observed.

This investment pipeline would materialise in the next three years.

“What guarantees this pipeline is the fact that over 70 per cent of $700 billion is pooled in through corporate profits,” he added.

Good indicators

The strong savings and investments rates at 34.8 per cent and 35.9 per cent respectively and incremental capital-out put ratio at four (better than China and Brazil) are good indicators of general economic health, he said.

He dismissed any impending threat from volatility in financial markets as “ nothing dramatically went wrong in our part of the world,” and whatever is happening is due to global economic scenario.

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