China's yuan devaluation unreasonable and dangerous: Aditya Puri

In an interview with ET Now, Aditya Puri, Managing Director, HDFC Bank shares his views on the state of the economy. Excerpts:

Aditya Puri: More transmission is required that will be a function of the deposit rates coming down. The government has started spending. Liquidity has come in and we are also talking with the central bank to reduce the risk weights and the cost of liquidity so transmission will also happen once we…

ET Now: Risk weights on what?

Aditya Puri: On assets. Our risk weights are much higher than international standards so we are saying, bring it to Basel III levels.

ET Now: Right now, the standard is 40 bps so what are you (practicing)?

Aditya Puri: No, no that is a separate thing. I am saying, if you take for instance consumer lending, the risk weight for calculating capital is taken at 125 per cent. Globally, it is 100 per cent. The situation is similar in housing and non-rated loans that affect the amount of capital required. So, that has to be reduced. We are looking at liquidity as the LCR cushion builds up under Basel II. We should be reducing SLR that combined with easy money. The change in inflation that you are seeing should lead to better transmission.

ET Now: On the legislative front, we are still worried about passing of the GST and the land bills. India Inc has been waiting for this for the longest time. What are your comments about the monsoon session?

Aditya Puri: My feeling is the same as yours. I think they should come together in the interest of the country. Besides that, what else can I say?

ET Now: The rupee has breached the 65 mark. According to you, where is it headed?

Aditya Puri: I do not know where it is headed but what China is doing is very dangerous and unpredictable. Devaluing the yuan twice in two days will lead to competitive devaluation, unless something is done to prevent it.

ET Now: But do you see any impact on Indian exports?

Aditya Puri: It is not just Indian exports, it will have an impact on all exports. China is a very big exporter and if it makes itself even cheaper, the dumping of steel and other goods that China already indulges in will only get worse. So, either competitive devaluation by other nations or global imposition of duty on Chinese goods is a distinct possibilities.