In an online chat on Monday, ICICI Bank Executive Director
V Vaidyanathan talked at length about the Union Budget, its impact on the banking industry as also its long term implications. Vaidyanathan is an alumnus of the Birla Institute of Technology and also a graduate and alumnus of the Harvard Business School
Here is the transcript:
Vaidyanathan says, 'Hi. Good Afternoon. Welcome to the session. Kindly note these are my personal opinions and do not represent the organisation's views. Vaidyanathan'
Shanki asked, Now that interest rates have hardened, volumes will obviously slow down.. So will the management of the bank spend more time in bettering customer service?
V. Vaidyanathan answers, at 2007-03-05 14:08:19Yes volumes.. i.e. Incremental retail disbursals for example, which was growing at 35-40 percent earlier will now probably grow by 20-25%. After all increased interest rates has made loans less affordable. What banks will now do is to introduce more structured loans, more customised loans. A number of loan offers will probably be done in a preapproved manner where the customer does not have to produce tedious documentation. Probably, tenors will get stretched in order to reduce EMIs and to make them more affordable.
madhva asked, Putting ESOP under the FBT is it helpful?
V. Vaidyanathan answers, Well, this was probably a surprise. But companies and executives are hopeful that when the final norms and percentages are prescribed, they will be more benign than it sounds right now.
ram asked, Hello sir, do you feel that FM has taken enough steps to curb inflation?
V. Vaidyanathan answers, Indeed,inflation is a real issue facing India right now. Inflation has to be tackled on two fronts. The supply side and the demand side.As far as demand side is concerned, the RBI has taken a number of steps to increase interest rates to cool down demand. On the supply side, indeed, the government has reduced customs and taken other steps that you saw in the budget. We may have to wait for a few months to see the full impact.
deepak asked, hi sir, how r u??
V. Vaidyanathan answers, Great, Thank you.
Vaishali asked, Mr Vaidyanathan, will ICICI Bank raise home and car loan rates further? In your wisdom and long years of expertise, do you fell interest rates are fine now, or is there room for them to drop or rise further?
V. Vaidyanathan answers, I would say, there is an upward bias on interest rates even now. Though liquidity seems to have improved,the signals seem to point in the direction that there is an upward bias. Since the country ratings are high, and opportunity seem to be high, a lot of foreign capital in the form of remittances, FDI, FII and ECBs continue to come into India. The RBI often sterlises these. This infuses liquidity which the RBI tends to suck out through monetary tools like increasing CRR. All eyes should be on inflation. If inflation cools down, then the need to raise rates may come down. The next few months should give a clear pointer but for now, the bias is upward.
Vaishali asked, Mr Vaidyanathan, will ICICI Bank raise home and car loan rates further? In your wisdom and long years of expertise, do you fell interest rates are fine now, or is there room for them to drop or rise further?
V. Vaidyanathan answers, I would say, there is an upward bias on interest rates even now. Though liquidity seems to have improved,the signals seem to point in the direction that there is an upward bias. Since the country ratings are high, and opportunity seem to be high, a lot of foreign capital in the form of remittances, FDI, FII and ECBs continue to come into India. The RBI often sterlises these. This infuses liquidity which the RBI tends to suck out through monetary tools like increasing CRR. All eyes should be on inflation. If inflation cools down, then the need to raise rates may come down. The next few months should give a clear pointer but for now, the bias is upward.
vinu asked, Dear Mr Vaidyanathan, does not charging FBT on ESOP amount to double taxaation? The emplyee who gets ESOPs already pays hefty capital gains tax and then the company will also have to pay FBT. Will this lead to comapnies not giving ESOPs?
V. Vaidyanathan answers, I saw an interview of the FM recently. He has clearly argued that ESOP is a fringe benefit. Let's wait for the final percentages that would be applicable and hope for the best.
chatty asked, The free fall on the Stock Markets are they attributed t the Budget only ? If not what are the other factors and do you think markets have overreacted to the Budget ?
V. Vaidyanathan answers, The reasons why the Stock markets have been doing
well in the past few years are to do with increased optimism and better trading platforms. As far as the optimism is concerned, the constituents continue to be intact, (excellent demographics, de-licensed environment, unleashing entrepreneur energy, and the linkage benefits are intact). So in the end, India's growth story should prevail. The only thing to watch out for is interest rates and its effect on growth. However, the belief of most experts is that the story is very intact. Hence, we have reasons to be optimistic in the medium run.