Loans to get cheaper by 50-75 bps in December

Loans for corporates and individuals could become cheaper by about 50-75 basis points by December,HDFC Bank managing director and CEO,Aditya Puri,said on Friday.

Loans for corporates and individuals could become cheaper by about 50-75 basis points by December,HDFC Bank managing director and CEO,Aditya Puri,said on Friday. Speaking at Idea Exchange,Puri explained that the fall in interest rates would,however,be a combination of several factors. As the government starts spending more from next month,the liquidity in the system would improve,which would then lead to a rise in bank deposits and allow banks to pass on rate cuts to customers right now,with liquidity tight and banks fighting to mop up deposits,there was virtually no scope to lower deposit rates.

Although,the Reserve Bank of India RBI has said that there is little headroom to cut rates; this is based on current factors, the HDFC Bank chief observed,adding that as the governments deficit came down,in the new financial year,it would also reduce pressure on rates. Puri believes that the problem today is not so much the poor accretion of deposits but the weak demand for loans. If a company wants a loan,it can get it, he said,asserting that for a viable project,there was no shortage of funds.

Pointing out that lower interest rates could only aid growth and not propel it,the HDFC Bank CEO felt the environment would get better as the CCI Cabinet Committee on Investments process cleared more stuck projects. Consequently,with more projects getting off the ground,India Inc would spend more,driving up investments. The increasing number of stalled projects,was one of the reasons for the jump in the quantum of restructured assets with banks approximately 5 per cent of bank loans right now. Banks,for instance,may have lent funds to a road project and,after a while,if the project never got cleared,it ended up as a restructured asset. Similarly,a power project might have borrowed funds and found itself starved for coal supplies. Should the investments come through quickly enough,however,GDP could start picking up and clock 6 per cent by the third quarter of the current year,Puri said adding that if the momentum sustained,the economy might even grow at 7.5 per cent next year. It all depends on what we get right, he observed.

The demand for products such as home loans,he pointed out,were influenced both by a stronger economy as also lower interest rates. The demand for home loans has been fairly robust but could pick up further with confidence returning, the HDFC Bank chief said. Puri said promoters were concerned if their companies were not doing well and it wasnt true that they didnt care about their businesses. However,he said that while the laws were in place,they needed to be executed so that bankers could get what was rightfully theirs. On consolidation,Puri said HDFC Bank was unlikely to do any acquisitions unless a bank was very attractively valued. We are likely to grow organically in the next few years, Puri said.