India growth intact despite global turmoil: KV Kamath

MUMBAI: Indian companies have sufficient fund to meet expansion needs despite the central bank's aggressive rate stance and a worsening global economic environment, banking legend KV Kamath said.

"Corporate India continues to generate enough cash to meet its growth projections. Large parts of the economy can fund itself," Kamath told as many as 250 global and local fund managers at IDFC's India Investors Conference. "I don't see a significant slowing down in services sectors, wage increases remain strong and will be out of line with inflation."

Domestic growth is mostly intact despite a series of rate increases by the Reserve Bank of India since March last year to tame stubborn price pressures, said the veteran banker, who turned ICICI Bank into a retail lending powerhouse from a sleepy project lender.

"Given the rate increases already in the system and current global environment, we could probably see a pause before looking at further steps. If 25 bps (rate increase) happens, it will impact sentiment," Kamath said.

The RBI has raised its benchmark lending rate or repo rate by 325 basis points since March 2010, which is the fastest pace of increase since the central bank was set up in 1935. The RBI will review its annual monetary policy again on September 16. Most economists and market participants expect the central bank to raise the key lending rate by another 25 bps inflation continues to be well above the RBI's comfort level.

Infrastructure sector is the worst hit in the current environment with most companies in the space battling delays in orders, surging interest rates and investor apathy, he said.

"The last 12 months have seen a slowdown in infrastructure projects and banks' willingness to fund these projects has also gone down," he said.

He sees banking sector growing at twice the pace of gross domestic product expansion. The fall in value of rupee versus dollar was not a worrisome factor immediately, he said. The local currency has declined 6.2% so far in 2011, making it Asia's worst performer, as global economic uncertainty prompted investors to withdraw funds from riskier assets.

"There will not be a dramatic effort by policymakers to rein it (rupee) in. The rupee probably will be left to market forces," Kamath said, adding, "Once it starts appearing in unchartered territory, say 50 or so, some action may take place."

The world economy is buffeted by fears of contagion across Europe even as cash rich US companies are outperforming their global rivals, he said.

"Europe appears red in the global heat map," he said, adding, "Its problems are obviously a result of profligacy and it's curious why they weren't recognised. But corporate US is doing exceptionally well and has good profit streams."


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