Veteran banker Uday Kotak today said he expects the RBI to bring down repo rate to 7-7.25 per cent by December.
Welcoming the status quo policy stance of the Reserve Bank at the monetary policy review yesterday, the Kotak Mahindra Group Executive Chairman and Managing Director said the apex bank has laid out a clear roadmap on the rate regime.
“Governor Raghuram Rajan has laid out the roadmap clearly. He is assuming around 6 per cent inflation by January 2016. He has also laid down 1.5-2 per cent is what he expects the real interest rate to be.
“So if inflation is somewhere in the 5.5-6 per cent range by January next, I believe the policy rates will be at 7-7.25 per cent (from 7.75% now) by December,” he told reporters here.
He welcomed the RBI move to allow banks to raise their stakes in companies under CDR (corporate debt restructuring) to 30 per cent. The RBI is saying in any company, the current equity holder must take the first pain and lender must take the pain after him, that is the first principle of finance.
“Therefore, all rules that the RBI is coming out with are consistent with the philosophy that existing equity holders have no right to be in business if they don’t take the pain before the banks do,” Kotak said after launching a book ‘The making of India: Game-changing transitions,’ by Akhilesh Tilotia, Associate Director at Kotak Institutional Equities.
Asked whether his bank, which late last year announced the largest bank merger with ING Vysya Bank in a Rs 15,017- crore all-stock deal, will be cutting rates soon, Kotak said it may take a while for banks to cut base rates.
“We are evaluating our base rate. But I think, for the banking system rate cut will happen either this quarter or next quarter.”
Asked whether he is hopeful of completing the ING Vysya deal before the April deadline, Kotak said he is confident of getting all regulatory approvals by end March.
He said Kotak Bank is ready to meet all contractual agreements, including those with the ING Vysya Bank unions, so that the merger process gets completed.
On expectations from Budget, he said it should lay down a clear long-term roadmap for the economy and help resume the stalled investment cycle. It should bring in more clarity on taxation and quantify the fiscal deficit numbers.
“Clarity on the tax policy is important for long term investment as both domestic and global investors need to know the rules of the game,” the banker added.