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Mar 19, 2013, 04.29 PM IST | Source: CNBC-TV18

Bajaj Finserv expects banks to cut rates in next 1-2 months

Sanjiv Bajaj, MD, Bajaj Finserv told CNBC-TV18 that the benefit of the rate cut (by RBI) will be achieved only when banks and non banking financial companies (NBFCs) will start implicating it immediately.

We have to get the economy back onto growth path again and it is now our responsibility as banks, NBFCs will start passing on this rate cut that RBI has gone ahead and indicated

Sanjiv Bajaj

MD

Bajaj Finserv & Investments

After Reserve Bank of India (RBI) announced a 25 basis point (bps) cut in its monetary policy on Tuesday , mixed reactions have been pouring in from India Inc. Sanjiv Bajaj, MD, Bajaj Finserv told CNBC-TV18 that the benefit of the rate cut (by RBI) will be achieved only when banks and non banking financial companies (NBFCs) will start implicating it immediately.

Bajaj says the company has already cut 20 bps and hopes to see the rate cuts coming from banks in the next one or two months and based on that we do hope to rate cut ourselves.

Below is the verbatim transcript of Sanjiv Bajaj's interview on CNBC-TV18

Q: Post the RBI policy, a few people indicated that on the back of the current liquidity scenario, transmission of 25 basis point (bps) repo rate cut is unlikely to take place immediately. It may happen in the next few months. Do things on the ground change on the back of the repo rate cut from the RBI?

A: It is unlikely to change unless transmission takes place and that is important. Even after the rate cut, couple of months ago many banks did transmit this down into their lending, but a few did not. Some of them are arguing that this must go hand-in-hand with a cash reserve ratio (CRR) cut as well, but each constituent of this economy needs to act its part.

We have to get the economy back onto growth path again and it is now our responsibility as banks, NBFCs will start passing on this rate cut that RBI has gone ahead and indicated. I hope the banks start transmitting this downwards. Now whether it is 1-2 months, differs for different banks, but it is very important to see a transmission and it is our responsibility to do it.

Q: Would a 25 bps transmission from the banks, if it happens in the next few months, will that materially benefit the company or the industry?

A: It will have a positive and not a negative effect. Given where the overall economy is right now, a lot needs to be done to take it out of its current slumber, but these are only a few drops in the option.

Q: So far in this entire year, we are likely to see 75-100 bps of cut and we have already seen a 25 bps come through and have therefore about 50-75 bps more. If that comes through on expected lines then what benefit could the industry face and in particular for Bajaj Finserv?

A: I am not an economist and hence not the best guy to tell you how an X cut in rates will have a Y effect on different sectors. I am sure there are many others who can do a better job, but rate cuts for existing projects make refinance cheaper. Secondly, the complete inaction that we are seeing in execution of infrastructure projects of other large projects in the country for a variety of reasons some related to the government, regulator and industry, we need to see movement in this. Otherwise, you are not going to see an improvement in the larger economy.

Lastly, how does this affect us? As you know our lending company Bajaj Finance that comes under Bajaj Finserv, we hope a large part of our borrowing is from banks. We hope that they transmit their rate cuts to us. We have already gone ahead and cut on average 20 bps from February 1 and if this rate cut comes through and because transmission is important, we will do our bit to cut rates going further down as well. The consumer needs to see not only his cost of borrowing go down, but also an improvement in the mood of the economy. So no one such initiative is going to change where we are today, but each one is required over the next 9-12 months.

Q: Pending any further cut from banks that will help reduce your cost of deposits and funds, will Bajaj Finserv cut the lending rates further?

A: We just cut 20 bps and hope to see the rate cuts coming from banks in the next one or two months and based on that we do hope to rate cut ourselves. I always look at the positive side and that is why I am not too happy with your negative question.

Bajaj Finserv stock price

On November 21, 2014, Bajaj Finserv closed at Rs 1071.25, up Rs 28.40, or 2.72 percent. The 52-week high of the share was Rs 1164.60 and the 52-week low was Rs 661.00.


The company's trailing 12-month (TTM) EPS was at Rs 5.27 per share as per the quarter ended September 2014. The stock's price-to-earnings (P/E) ratio was 203.27. The latest book value of the company is Rs 154.79 per share. At current value, the price-to-book value of the company is 6.92.

READ MORE ON  RBI, monetary policy, NBFCs, CRR, banks
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