Bankers laud RBI's growth stance, say rates to soften ahead

Indian banks may reduce lending rates for select sectors including those that are seeing higher demand for credit and lower level of defaults, chairman of State Bank of India , the country's top lender, said on Tuesday.

These sectors may see "some softening in cost of funds", Pratip Chaudhuri told reporters, after the Reserve Bank of India (RBI) cut cash reserve requirements (CRR) for banks by 50 basis points to ease tight liquidity.

Below is an excerpt of top bankers one-on-one with journalists after the RBI credit policy. Also watch the attached videos.

On deposit rates

Chaudhuri said "Our Asset Liability Committee (ALCO) will meet soon and then take a call because deposit rate cutting will also depend on what other competing savings instruments are offering and with so many tax saving instruments in the market at 8.3-8.5% range one has to be circumspect to cut the deposit rates very dramatically."

"So even if the deposit rate remain where they are because the saving rates are going to remain at 4% and term deposit rates again will not only depend on what the banks do but what are the other instruments are doing and this is the time when there is more pressure from other competing particularly the tax saving and the tax free bonds."

On margins

Chanda Kochhar of ICICI Bank says, "If you look at that much money is getting released for the system, so for the banks as a whole the cost on Rs 32,000 crore definitely comes down. So you start to get earnings return on the Rs 32,000 crore so that is definitely a positive move even leaving some scope on the net interest margins.

On cost of money

Aditya Puri, chief executive at HDFC Bank said, in general, the cost of money should come down. "Structurally, the interest rates today reflect multiple doubt from the future economy so as that settles down if the interest rate is going down yes, it should, because otherwise today probably I have called market higher than G-secs so those structures will have to change."

On banking sector risk aversion

Puri said "Fundamentally, banks reflect the state of the economy and what is expected is with reduction in inflation, easy liquidity there is to be an uptick in economic activity. If there is uptick in economic activity, we will participate in it that was the gist of the discussion."

On lending rate cuts

Kochhar said, "It is very difficult to say when. But yes, as I said, you would see a softening. Talking about the NPA numbers, I think currently what is happening when the whole world is looking at the quality of the assets of the banking sector. The whole set of issues and worries, which are there, are getting over exaggerated. Second, while there could be some issues related to specific companies, those issues are then being viewed as macro issues. I think that is the kind of move that we should try and stay away from. There are definitely some projects which do not have approvals on time, which may get slightly delayed. There are some companies, which may go through restructuring, but we have to also remember that all said and done, the NPA number currently is 2.66 even if you were to add the entire restructured assets and the likely restructured assets. The number still does not balloon substantially compared to what many other countries would have seen."

"If you really look back into the history of restructured assets for the banking sector, actually the experience of the banking sector with restructured assets has been very positive. I think not more than about 15% or so has really moved into NPA, the rest of it has actually performed as per expectations have moved up. So while yes, there are cases are known there would be additions to restructuring assets for the banking sector."

"First of all, just because one company or one project in an industry is in a problem does not mean that entire industry exposure is bad. The second is restructuring does not mean losses and that is not the way of putting water and covering the issue it is really going by past experience in the Indian economy to say that in a growth economy finally the demand really makes the projects work. What is important is to hand hold and find that temporary solution to the problem. I think just that while we should recognize the issues we should not over exaggerate the worries."

(With inputs from Reuters)