ICICI Bank Ltd., India's second largest, has halved its target for growth in lending to 15 percent as global financial-market turmoil spills into Asia's third-largest economy.
High borrowing costs and a slowing economy are denting demand for loans in India, ICICI Chief Executive Officer K.V. Kamath said in a Bloomberg Television interview. India's benchmark interest rate, at 7.5 percent, is higher than that of China, which is growing faster.
``Instead of growing at 30 percent, the target rate we had set two to three years back, we will now probably grow domestically and globally at probably around 15 percent,'' Kamath said. ``The domestic growth cycle has slowed down and interest rates are high domestically.''
ICICI tumbled 5.1 percent to 366.65 rupees as of 10:13 a.m. local time in Mumbai trading. It was the worst performer on the Bombay Stock Exchange's benchmark Sensitive Index, or Sensex.
Credit expansion in India is stalling even after the central bank cut borrowing costs twice in the past month to shield the economy from a global recession. ICICI's loan growth slumped to 16 percent from a peak of 55 percent in the year that ended March 2006.
``There will be a slowdown in India and steps taken and those that will be taken, to a large extent, will compensate the factors causing the slowdown,'' Finance Minister Palaniappan Chidambaram told the World Economic Forum's India Economic Summit in New Delhi today. ``We are confident we'll end this year with satisfactory growth rate.''
Lending rates must fall by another 3 percentage points to ignite a rebound in loan demand, said Kamath, 61. India's economy grew at the slowest pace since 2004 in the quarter ended June 30, expanding 7.9 percent from a year earlier.
``It is a big challenge for ICICI to show growth in this environment,'' said V. Suesh Babu, head of securities at Spark Capital Advisors Pvt. in Chennai. ``It is not that others are doing well; business confidence itself is shaken.''
No Acquisitions
Kamath also said uncertainty about the global economy means falling asset prices are unlikely to result in ICICI making acquisitions.
``In this market, looking at valuations probably is going to be a tough one because you are not very sure of what is happening in other countries and probably you are better off conserving your own capital than making an acquisition,'' Kamath said.
ICICI's shares have fallen 69 percent this year, and the bank's Sept. 16 announcement that it set aside $28 million for losses related to Lehman Brothers Holdings Inc.'s bankruptcy caused some depositors to withdraw money. The run on ICICI prompted the government and central bank to make assurances to the public that the lender and its deposits are safe.
Bad loans may increase in India unless borrowing costs fall, prompting banks to further restrict lending, said Kamath. ICICI increased provisions for delinquent loans and losses on investments 43 percent in the latest quarter from a year earlier, to $188 million
