CLSA’s Agarwal Says India Policy Inaction May Hurt Private Banks

Aashish Agarwal, executive director at CLSA Asia-Pacific Markets, comments on delays in policy decisions in India and funding costs. He spoke in an interview in New Delhi today.

On policy inaction:

“If the policy inaction at the government level continues for another six to nine months then the stress will probably spread out from small and medium enterprises to larger corporates. In that case, we will get into a systemic bad-loan cycle, which will hurt even the private lenders. Environmental clearance, land acquisition, infrastructure activity should become priorities for the government.”

On funding costs:

“Downgrades, tightness in global liquidity, and the general movement in interest rates is going to impact funding costs across the board. Funding cost of most corporates that Indian banks lend to have also gone up. So I don’t think that the borrowing cost will translate into a spread compression for any of the banks.”

On bank margins:

“In last six months or so banks have become more rational as far as pricing is concerned and hence we saw their margins bottom out in the previous quarter. It just shows that banks are not willing to absorb any change in borrowing costs but are looking to pass it on by raising the rates. In my view, even if the savings rate goes up banks will not take it as a pressure on the margin.”

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