HDFC chairman Deepak Parekh told CNBC-TV18 that the RBI has swallowed a bitter pill despite no decline in inflation. He adds that he was not satisfied over the recent policy flip-flops by the government.
Deepak Parekh, one of India's most influential corporate leaders has lashed out at the policy flip-flops in India. The HDFC Chairman said that foreign investors are now shying away from India across sectors.
High current account deficit, slowdown in the economy, unclear tax provisions is making them apprehensive about India, he told in an interview to CNBC-TV18's Shereen Bhan.
"I was in Singapore with big investors, they said they would look at other countries and look at India when the environment was more conducive. But, at the moment there is to be no more investment in India."
Given these macro issues, he feels that government's target of achieving 7-7.5% growth this year is over ambitious.
Meanwhile, talking on Reserve Bank's move to cut policy rates by 50 basis point, Parekh said, "The RBI has swallowed the bitter pill despite no decline in inflation , but it’s about time that we give a little bit of growth to the economy. I'm not satisfied over the recent policy flip-flops by the government."
Below is an edited transcript of his interview with CNBC-TV18's Shereen Bhan. Also watch the accompanying videos.
Q: I have to ask you about what the Reserve Bank has done in its credit policy, it has surprised the market with that 50 basis point cut on the CRR any way post the macro economic review, the hopes of a further CRR cut was diminished what are your thoughts on the credit policy?
A: It is time we need an impetus for growth. Growth has been badly impacted. The Reserve Bank has swallowed the bitter pill that although inflation has not come down to the level they would have liked and we would have liked, but it’s about time that we give a little bit of growth to the economy.
Q: Do you believe he is being forced into taking a more aggressive rate cut because expectation was 25bps. We heard the Finance Minister 30 minutes before the policy saying that you will hear about rate cut in the next 30 minutes. Do you believe he was badgered into a more aggressive unwinding?
A: He was badgered last time also, but he stood his ground. Some numbers that have come out are a little better than last time. So, there was some justification. He has taken a bold step rather than keep changing every two months and three months.
Q: But the comment that this now going to leave little headroom for further aggressive action, do you believe that this is perhaps it at least for the short term?
A: I think it’s perhaps it. Inflation is still not under control, food inflation is high and we have not been able to pass on increase in petroleum and fertilizer subsidies have gone through the roof. We are unable to take a political decision to increase fuel and diesel prices. I don’t know why we can’t take a decision and is government a charitable organization?
Q: It’s not a charitable organization; it’s a political organization unfortunately, so they are worried about what happens in Bengal.
A: The marginal increase in rail fares were brought down, there was some talk that petrol prices have gone up, but that’s being reversed. So, government is unable to take any decision on increasing prices, which means the Subsidy Bill is going to increase and increase.
Q: What is this going to mean for consumers because consumers and manufacturers have been saying that they need rates to come down. Is this going to pass on with the consumers you believe?
A: The deposit growth has been tardy. Deposit growth has been around 13%. Normally it’s 16-17%. So, this year the deposit growth has been low. Now with this reduction in repo and reverse repo, all the banks will have to look at the deposit rates. You can’t reduce lending rates till you bring your cost of funds down. So should we look at reducing deposit rates?
Q: Do you think that’s going to happen or is it possible or feasible for banks to do that at this point in time?
A: Even at such high deposit rates, the deposit growths are not happening as everyone expected. So if you reduce deposit rates, I don’t know whether further deposit growth is going to happen. If you do not reduce the deposit rate, how are you going to reduce your lending rates? So banks will be in a dilemma - what to do? They will be forced to reduce deposit rates, but the deposits are not coming. Deposit growth has been much lower this year.
Q: How optimistic are you that post this announcement, we are going to be able to see some kind of a turn around?
Q: What do you make of this stance of reducing exposure to gold NBFCs?
A: I agree with the RBI policy. Even now they have been a bit lenient because it is an asset that doesn’t generate revenue. It is an asset, which is dead investment. It is an asset that remains in homes and lockers of banks. If we are importing so much of gold, we should have a reasonably high duty to make it as a disincentive because we need foreign currency.
You see what is happening; we can’t afford to import any amount of gold. I personally feel that on the deposit side, people are spending money at a larger space. Luxury goods and essentials have become more expensive, so savings rate has come down a bit, which is the reason why deposit growth has not grown.
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