Indianomics: Situation like 2003 with new momentum for economy, says KV Kamath

KV Kamath (Image: Reuters)

In an exclusive interview to CNBC-TV18, KV Kamath, former head of New Development Bank and ex-chairman of ICICI Bank said that he is seeing signs of improvement in economy since late May.

“Early signs of improvement were visible I would say starting late May and then they accelerated during June, July, August, September, and October. So, the second quarter GDP numbers do not come as a surprise. This is a steady improvement and I believe that gives it more credibility and provides proper foundation for us to get onto the next phase in terms of recovering lost ground as it were,” he said.

KV Kamath backs corporates' entry into banking sector

According to Kamath, we are in the same situation as 2003 with new momentum for the economy.

“There are a lot of similarities. One is the cleanup in the stressed assets that took place at that point in time. But there is another very important aspect and that was post the 2001 steps by the government, you had a sharp drop in bond rates. Bond rates went from around 11 percent to 5.5 percent, mortgages as a consequence dropped from 14 percent to 7 percent, and corporate lending came down from 15 percent to 8-9 percent. When we look at the numbers now, the entire yield curve is below the policy rate. So, you have situation which I don’t think was there even in 2003. It is better than that,” he said.

Kamath said that interest rates are truly moving down and there is no better tonic than low interest rates to drive demand. He also complimented the government on extension of ECLGS scheme.

The veteran banker believes that the propensity to borrow recklessly has dramatically gone down over the years. He said that the borrowers have learnt their lessons over the last 10 years and are now very conscious of their CIBIL score.

On the ownership of private banks, he said that there is a need to expand private sector banking once the regulatory framework is in place. He also said that the banking sector as percentage of GDP in India is on the lower side and unless we can increase size of banking system we will fall short in funding growth.

Source: CNBC-TV18