Strong bond market needed for infrastructure funding: Kamath

MUMBAI: Country's second largest lender ICICI Bank has said the country would be unable to find the over $400 billion required by it for infrastructure development in the next five years in the absence of a strong bond market.

"Long-term funding for infrastructure is a challenge for banks...the issue is of tenor...what is required now is a strong bond market and unless this happens, long-term funding will pose a problem," ICICI Bank's Managing Director K V Kamath said.

There was a need to find solutions in the interim till the long-term domestic bond market grows, he said, adding that "one of the options we could explore is appropriate tenor funding in foreign currency -- this could be the way out."

With long-term savers now coming into play such as life insurance and pension fund players, the country could have a stronger domestic market over the next three-year period, he said.

"The life insurance segment is growing at 60 per cent and this is a healthy sign," he said, adding that this was an indication that the long-term market was developing in the country.

On the Indian banking industry, Kamath said that banks here needed to grow in scale. "The India growth story is strong and if the Indian banking industry is to support it, then we need to grow to the right scale."

Banks in India first needed to consolidate domestically, he said, adding "there is a tremendous opportunity in the Indian financial services sector in the next few years."

On ICICI Bank launching reverse mortgage products, Kamath said that the market was not yet ripe for its launch.

Reverse mortgage enables a senior citizen who is the owner of a house to avail of a monthly stream of income against the mortgage of the house while remaining the owner of the house as well as occupying it throughout his lifetime without repayment or servicing of the loan.

"In a market which is volatile, it is not prudent to launch new products. We will wait till the market stabilises before considering reverse mortgage products," Kamath said.

The concept of reverse mortgage was mooted in the budget by Union Finance Minister, P Chidambaram, earlier this year.

It acts as a combination of a housing finance and insurance product and enables senior citizens to monetise their holdings.

"Interest rates have gone up by 33 per cent in the last one year and besides, there have been huge fluctuations in home loan rates since 2000. Hence, it would not be appropriate to launch this product at this juncture, Kamath said.

Citing the example of 10-year bonds, Kamath said that the yield was 11 per cent in 2000, which declined to 5.5 per cent in 2004. "It again rose to 9 per cent while presently it is around 7.85 per cent," he said.

In the present volatile environment, it will be difficult to launch such products though reverse mortgage will enter the market in the future. "Its time will come," he said.

Once the market stabilises, ICICI Bank would consider launching reverse mortgage products. "We should be able to gauge the interest rate regime and besides, customers should also be able to understand the product," Kamath said.