Indian banks eye assets of European counterparts

As European lenders seek to deleverage their books to meet new capital adequacy norms amid the euro zone sovereign debt crisis, Indian banks are eyeing a business opportunity — acquiring quality assets at attractive prices.

Chanda Kochhar, managing director and chief executive officer, ICICI Bank, said, “For the Indian banking sector, it is a business opportunity. Some European banks are actually shedding great quality Indian assets at very attractive prices. We will see many Indian banks coming forward to pick up these loans.” She was speaking at the India Leadership Forum organised by the National Association of Software and Services Companies.

Kochhar said the deleveraging would have a long-term impact on trade finance and the funding of mergers and acquisitions deals, as European banks have been large players in these businesses.

She was confident that the domestic economy and the banking system would remain resilient to external shocks. “I think we are going through a phase in which the mood is worse than the ground reality. What is still strong for us is the domestic consumption, the demography. We have very strong banks and a prudent regulatory environment,” she said.

On interest rates, she said she expected these to decline from the first half of next financial year, as inflation had appeared to ease. However, banks would first assess the liquidity conditions and the demand for loans before scaling down rates. “I think the coming financial year would be better because many things would actually start correcting. Inflation would start slowing. The only question would be when and at what rate,” she said.

“The lending rates will not change because of (a revision) in policy rates alone, but also on the basis of a pick-up in credit and deposits, and the general liquidity. We should watch the total impact of the CRR (cash reserve ratio) cut, the credit growth and the lending rates. I believe in the coming financial year, at least in the first half, lending rates will go down.”

She, however, dismissed concern on the asset quality of Indian banks in the current uncertain macro-economic environment, saying retail advance portfolios of lenders continued to be stable and that there were only a few instances of corporate loans turning bad. “That does not mean the entire corporate sector is facing a challenge. The worries around asset quality are specific around certain companies, and it (the concern) is probably more exaggerated than the real issue,” she said.