Bloomberg News

HDFC Bank’s Puri Says India May Disregard Lenders’ Rate Plea

October 10, 2011

(Updates with Puri’s comments on the power sector debt revamp in seventh paragraph.)

Oct. 10 (Bloomberg) -- India’s central bank is likely to boost interest rates this month even after the nation’s lenders urged a pause at a meeting with the central bank last week, HDFC Bank Ltd. Managing Director Aditya Puri said.

The Reserve Bank of India, which has increased interest rates by 350 basis points since mid-March 2010, may increase borrowing costs by another quarter percentage point this month, Puri said in an interview in Mumbai on Oct. 7. The Reserve Bank is scheduled to hold its next policy review on Oct. 25. Indian bankers met Governor Duvvuri Subbarao last week to discuss their concerns.

India’s central bank, which broke ranks with other so- called BRIC nations last month to raise interest rates, is focused on curbing inflation, Puri said. Inflation rate remains above the level the central bank deems acceptable, Subbarao said on Sept. 26, signaling pressure remains for monetary tightening in Asia’s third-largest economy. Lenders’ bad debts are likely to climb as growth slows, Puri said.

“Everybody is saying that interest rates have risen, the economy is slowing, and if further interest rate increases are necessary or not?” Puri said. “But the central bank has its own compulsions in terms of what is going to happen to inflation.”

Power Sector Debt

The Reserve Bank may increase its repurchase rate to 8.5 percent from 8.25 percent by the end of December, according to 11 of 16 economists in a Bloomberg News survey. The rest expect no change.

HDFC Bank, which toppled ICICI Bank Ltd., as India’s second-largest lender by market value in August, rose 1.3 percent to 455.95 rupees at 1:26 p.m. in Mumbai.

Indian lenders may have to restructure some of the credit to the power sector, Puri said. The revamp process may lead to the equity investors of such projects losing their money, while banks may have to agree to a 10 percent reduction in repayment, he said, declining to give examples.

HDFC Bank won’t be affected by the debt restructuring in the sector, Puri said.

Credit growth may meet the regulator’s reduced target of 18 percent for the year ending March 31, Puri said. Still, the increase in bad loans will not pose a risk to the banking system, he said.

--Editors: Arijit Ghosh, Sam Nagarajan

To contact the reporter on this story: Ruth David in Mumbai at rdavid9@bloomberg.net George Smith Alexander in Mumbai at galexander11@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net


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