India must shift focus to reviving economic growth led by investments after stability returned to the nation’s currency and bond markets, ICICI Bank Ltd.’s Chief Executive Officer Chanda Kochhar said.
The steps taken by the Reserve Bank of India, including those to roll back some of the previous liquidity tightening and measures to lure inflows from overseas Indians have had a cooling effect, she said in an interview in Washington D.C. The economic slowdown is weighing on banks’ asset quality though it isn’t bad enough to “create a big kind of havoc,” she said.
“Finally what we need to focus on is growth in the country,” she said. “It’s the investment story that has fallen off currently. What we really need is a much more conducive environment.”
Raghuram Rajan, who began his term as the Reserve Bank of India’s governor last month, has taken steps to boost dollar supply and also eased some of the cash squeeze his predecessor Duvvuri Subbarao imposed to support the rupee. As a result, the local currency has rebounded 13 percent from a record low reached in August. Rajan unexpectedly raised the benchmark interest rate last month, threatening to delay recovery of the economy from its slowest pace of growth in a decade.
The rupee traded at 61.08 a dollar on Oct. 11, compared with an all-time low of 68.845 reached on Aug. 28. Ten-year government bond yields have fallen 74 basis points from a five-year high of 9.23 percent reached on Aug. 19.
Data last week showed India’s industrial-output growth slowed more than economists estimated in August as consumer spending moderated, adding pressure on Prime Minister Manmohan Singh’s government to intensify efforts to revive the $1.8 trillion economy.
The U.S. Federal Reserve said last month it wants to see more evidence of a recovery in the world’s largest economy before tapering monthly bond purchases of $85 billion that have buoyed emerging markets.
“Any of this tapering would have an effect globally so India cannot escape,” Kochhar said. “But I think the bigger issue or the challenge lies in just bringing back growth in the economy.”
Singh’s steps, ranging from fewer restrictions on foreign investors to faster approvals for road and power projects, have so far failed to stem a slowdown in growth. Rajan increased the repurchase rate on Sept. 20 by a quarter-percentage point to 7.5 percent and signaled more in his pledge to cool inflation.
Policy makers need to ensure “projects get approvals, that the approvals are consistent, that they don’t get withdrawn while the project is under implementation and so on,” Kochhar said.
While the slowdown in growth will add to Indian banks’ bad loans, she said the consumer portfolio, whether it’s mortgages or car loans, has continued to be “very stable.”
Kochhar said ICICI Bank’s international loan business is growing at “around 10 percent to 15 percent.”
The lender is looking at a Japanese yen-denominated bond issuance “as the markets stabilize,” she said.
“We always like to make an issuance when the rates are at their optimum,” Kochhar said.