Low interest rates critical for survival of banks, says veteran banker KV Kamath
"If interest rates are at 6 percent, NPA's will double in six years. Both cost of credit and the flow of credit both have to be looked at," he said adding that the problem with low interest, however, is that capital injection will be significantly lower.
Image: Adnan Abidi / Reuters
The banking sector which was already under stress prior to the coronavirus pandemic will see more challenges going ahead, said KV Kamath.
In an interview with Network18, the veteran banker said that low-interest rates will be critical for the survival of banks.
"If interest rates are at 6 percent, NPAs will double in six years. Both cost of credit and the flow of credit both have to be looked at," he said adding that the problem with low interest, however, is that capital injection will be significantly lower.
According to him, the announcement and extension of moratorium is a welcomed step.
The Reserve Bank of India had in March had granted a three-month moratorium on term loans to help borrowers during the COVID-19 outbreak. This was later extended until the end of August.
However, most borrowers have opted to repay availed loans. A recent media report indicated that less than 30 percent of borrowers have opted for the loan moratorium in fears of inflated payouts once it ends.
"[It is] extremely good news that some customers are opting to repay. I stand with banking leaders saying one-time longer-term moratorium solution is needed," Kamath said.
In a career spanning nearly half a century, Kamath served as the CEO of ICICI Bank. He landed a top job with the private sector lender after working eight years with the Asian Development Bank in Manila. He also served as the founding president of the five-nation New Development Bank in Shanghai and the chairman of Infosys.
The IIM-Ahmedabad alumnus' multilateral finance credentials, as well as close connections with India Inc, has put him in talks for a senior role in Indian government. He has a resume that few other possess, as well the skills and contacts that PM Modi may need if India has to quickly aim for double-digit growth.
Read all the stories on KV Kamath's exclusive interview with Network18 here
Original Source: https://www.moneycontrol.com/news/business/economy/low-interest-rates-critical-for-survival-of-banks-says-veteran-banker-kv-kamath-5516681.html