A rise in deposit rates is unlikely to dent the net interest margin (NIM) of India's banking behemoth – the State Bank of India. The lender still expects to maintain its NIM guidance in the range of 3.70-3.75% for 2012-13, said the bank chairman Pratip Chaudhuri in an interaction with CNBC TV18.
It has recently raised its fixed deposit rates by 25 basis points in some select maturities. It was aimed at mopping up more funds by offering higher rates at a time when the entire banking industry is struggling to garner public deposits due to low interest rates.
Meanwhile, the bank sees some momentum in their loan expansion by the end of Jan-March quarter,2013. Its loan book would grow at 20-21% year-on-year. During the October-December quarter, loans increased nearly 16% to Rs 9.78 lakh crore. The pace of credit growth peaks especially in the fourth quarter – the second half of the so-called busy season. The Reserve Bank of India projected a 17% Y-o-Y loan growth in 2013-14 for the entire banking industry.
So far in FY13, the retail loans primarily fueled its credit growth. However, SBI of late, is witnessing some improvement in corporate loans as well. The bank does not see any problem on capital infusion by the government, its major stake holder.
In 2013-14, the bank expects the government to pump in the same level of capital (around Rs 3,000 crore) as in 2012-13, Chaudhuri said.
Below is the edited transcript of his interview to CNBC-TV18.
Q: The bankers before the Budget were hoping that banks would get some aid in way of making fixed deposits (FDs) as attractive as debt market mutual funds. Does it suffice that there has been an extra tax on some of the liquid funds?
A: We actually made a request. The growth option still continues at 10 percent, so we will have to live with that handicap for some more time. These anomalies would be eliminated once direct taxes kick in.
Q: What is your overall sense of deposit cost itself? Couple of banks including SBI, have had to increase the deposit rates in some buckets. Are you getting a sense that there is not much downside to deposit rates and therefore there cannot be much downside to lending rates hereon, at least not very quickly?
A: Message from depositors indicates that one cannot keep lowering the rates and expect their patronage. Our peak rate had dropped to 8.5 percent, we have moved it back to 8.75 percent and plus there is a plethora of tax-free bond issues which are also putting pressure on bank deposit mobilisation. Currently, we are more liquid than any other bank and the deposit rate increase is purely a treasury issue, not much of a liquidity issue.
Q: Despite the hike in some buckets you are still about 25 bps to 60-70 bps lower than your peers. Do you think there is more headroom for a hike? There is also some concern that because deposits reprise slowly, you could have some pressure on margins. How would you respond to that?
A: Particularly, I do not see any more headroom for a hike because we take a look at the flow of deposits. In the first quarter, we grew by Rs 25000 crore, in the second quarter Rs 40,000 crore, I am only considering retail deposit, and we are completely out of the bulk deposit market.
In the third quarter it was Rs 9000 crore and at that time we were having an abundance of liquidity. In January that part of liquidity got soaked up and was deployed for credit. We still have 25 bps lower than many other banks but our brand, the image and distribution compensates everything and we still maintain our guidance of net interest margin between 3.70 and 3.75.
Q: The write-off on rural loans has now been defined as rural and urban loans. That is an extremely technical provisioning condition. Whether you will have to pay higher taxes? What does it mean in terms of the bottom-line? Will you have to pay marginally higher taxes? Will some PSU banks have to pay higher taxes?
A: I have not read the fineprint. Earlier the loan-loss provisioning was circumscribed by the margin on the total rural advances. That would be extended to both rural and semi-urban. So we are not reaching that in aggregate or separately. Other public sector banks which have been claiming a larger amount of provisioning could be affected.
Q: Post Budget, there has been market talk that the government’s allocation of Rs 14,000 crore is not enough, you couldn’t expect much given that we have a big deficit but nevertheless the amount allocated will not suffice, what are your thoughts on SBI alone and the PSU banking space?
A: I cannot comment for other PSUs but for SBI, we got an allocation of Rs 3,000 crore this year and we expect to make another Rs 14,000-15,000 crore of net profit this year. So our internal generation plus the government infusion is very strong and the government infusion is largely for our associates and subsidiaries. So a similar magnitude allocation for this year should be adequate because the bank’s internal surplus generation is also fairly robust.
Q: How does the loan growth looks now, that we are into a good two-thirds of the current quarter, are you happy, what kind of loan growth would you get annually for SBI itself?
A: It has been a huge, pleasant surprise. I was slightly diffident and pegging it at 16 percent but as of now, the year-on-year (Y-o-Y) growth is close to 18 percent. Fore SBI the Y-o-Y growth could be between 20-21 percent.
So there has been a huge upsurge in the loan demand after rationalization of our interest rate and I think the FM is right in saying that loan demand is also a function of cost of capital. So, as we have made them more market friendly, lowered the interest rates, we are seeing a huge demand for loans both in retail and corporate.
Q: Which sector is asking for money? Which sector is borrowing?
A: Home and the auto sector. We are seeing a strong loan demand in our auto division. Home is also a very important segment and we are now seeing a revival in demand from the corporate sector as well.
Q: There have been some steps taken for affordable housing, how much do you see that helping your loan growth particularly because you point out housing is fairing better than other sectors?
A: We are not a specialised home loan company so I cannot put a number around that right now.
Q: Are you getting a sense at least if the downturn in the economy is over because the sectors you are pointing out to are fairly retail. You haven't spoken so far about any improvement in corporate demand for loans. Are you of the opinion that the corporate downturn has hit the bottom or you cannot say that with certainty?
A: Corporate downturn has hit the bottom and at least people are talking of new projects. Three months back nobody was even talking of new projects. Now people are at least saying that we are considering, something is on the drawing board and some trickles are coming in so these are some of the green shoots we are seeing in the economy and at least in the loan demand.