Uday Kotak expects RBI to cut rates by 50 basis points

Mumbai: Uday Kotak, executive vice chairman and managing director of Kotak Mahindra Bank Ltd, expects the Reserve Bank of India (RBI) to reduce rates by an additional 50 basis points by the end of 2015. One basis point is one-hundredth of a percentage point.

Changing expectations about the timing of an increase in US interest rates could have an impact on the central bank’s ability to cut rates, Kotak said while speaking at the Kotak Institutional Equities investor conference, Millenium Makers of India, in Mumbai on Monday.

“Till Friday, I would have said I am a expecting a 75 basis point cut for the rest of the year ...now I would expect 50 basis points,” he said while referring to the strong US jobs data released on Friday.

The US economy added a more than expected 257,000 jobs in January, data released on Friday showed. Stronger than expected jobs data may push the US Federal Reserve to raise rates quicker than expected.

Kotak added that while he was positive on economic stability in India, he expects a gradual pick-up in growth.

“It’s a marathon, not a sprint,” said Kotak, adding that he expects growth to average 6.5% over the first five years of the current government.Any significant pick-up in investment at the current juncture will have to come from state owned firms as a number of private companies, particularly in the infrastructure sector, remain overleveraged, according to Kotak.

Speaking about stress in the banking sector, Kotak expects a slew of restructuring in the next couple of months before the forbearance on restructured loans provided by RBI is taken away.

“A purist method of distress recognition will mean a significant recognition coming through. We are heading for a time of recognition and realization,” said Kotak.

Starting 1 April, forebearance provided to restructured loans will expire and banks will have to increase the amount of money they put aside for such loans. These loans will also be accounted as part of bad loans starting 1 April.

Kotak Mahindra Group