Davos WEF 2022 | Interest Rates May Reach Pre-Covid Levels By August, Says Axis Bank's Amitabh Chaudhry

The Reserve Bank of India may take interest rates to pre-pandemic levels by July-August as inflation continues to weigh on supply, according to Axis Bank's Amitabh Chaudhry.

The central bank may move to increase interest rates in July and then again in August, the managing director and chief executive officer at the private lender told BQ Prime's Menaka Doshi on the sidelines of World Economic Forum in Davos on Monday. “Between 75 and 125 basis points is what the RBI needs to do,” he said, adding that the central bank wouldn't shy away from it.

War inflation, Chaudhry said, is not “over yet because the supply-side pressure on commodities has not gone away and there's enough liquidity in the system sloshing away”.

According to Chaudhry, large banks and financial institutions will not witness an increase in levels of non-performing assets by interest rates hikes due to large provisions in their financials. Weaker banks and small non-banking companies, however, may face “stress build up in the system”.

Demand Outlook

While demand has picked up as Covid-related restrictions are lifted, it still remains weak on the “wholesale side” as large-scale corporations deleveraged themselves and don't need credit to invest, Chaudhry said.

But the total demand for credit “reached double digits for the first time” from April—most of it comes from the retail sector. Chaudhry, however, remains watchful as there are “too many factors at play”.

Rise In Operating Expenses

As the private lender invests in Bharat Bank—aimed at serving the rural demographic in mid corporate and other banking services—the operating expenses rose, affecting its profitability.

The technology spend has doubled over the last three years for the bank, Chaudhry said. “More than 60% of our spend is revenue-linked; the balance of it is obviously technology where we are scaling infrastructure as we are growing.”

The collection costs of the bank, he said, have also increased during Covid-19.

Watch the full interview here:

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