KV Kamath Says Low Interest Rates Critical for Survival of Banks, Calls Loan Moratorium Welcomed Step

Former chief of New Development Bank of BRICS countries KV Kamath on Tuesday said that low-interest rates will be critical for the survival of banks as the sector, which was already under stress prior to the coronavirus pandemic, will face more challenges going ahead.

In an exclusive interview with Network18, the veteran banker said that if interests rates were maintained at 6 per cent, the Non Performing Assets (NPAs) would double in six years. “Both cost of credit and the flow of credit both have to be looked at,” he said, adding that the problem with low interest, however, is that capital injection will be significantly lower.

According to him, the announcement and extension of moratorium is a welcomed step. The Reserve Bank of India had in March granted a three-month moratorium on term loans to help borrowers amid the Covid-19 outbreak, which was later extended until the end of August.

However, most borrowers opted to repay availed loans. A recent media report indicated that less than 30 per cent of the borrowers opted for the moratorium in fears of inflated payouts once it ends.

“[It is] an extremely good news that some customers are opting to repay. I stand with banking leaders saying one-time longer-term moratorium solution is needed,” Kamath said.

In a career spanning nearly half a century, Kamath served as the CEO of ICICI Bank. He landed a top job with the private sector lender after working eight years with the Asian Development Bank in Manila. He also served as the founding president of the five-nation New Development Bank in Shanghai and the chairman of Infosys.

An IIM-Ahmedabad alumnus, Kamath’s multilateral finance credentials and his close connections with India Inc have put him in talks for a senior role in Union government. He has a resume that few other possess, as well the skills and contacts that PM Narendra Modi may need if India has to quickly aim for double-digit growth.