Private sector lender Axis Bank non-performing assets (NPAs) may inch up going ahead, says MD and CEO Shikha Sharma. In an interview to CNBC-TV18 she said that the bank's cost of funds may see a modest upside.
"Cost of funds will go up but not on the whole because it’s the only deposit that gets re-priced and hit by the higher interest rates," she added. However, its margins won't be impacted in the short-term.
Meanwhile, she does not expects the Reserve Bank of India to cut rates on September 20 but take measures that could ease liquidity into the system. "This is because if the liquidity environment remains tight for a long period of time then it would impact financial health of companies specially the smaller ones," she adds. (Read More)
Below is the verbatim transcript of Shikha Sharma's interview on CNBC-TV18
Q: Do you think this quarter banks will face pressure on their margins, a word on your margins as well?
A: We determine the margins on what is happening to cost of funds and also the ability to pass that increase to consumers. Cost of funds will go up a bit, not much because it’s the only deposit that gets re-priced, hit by the higher interest rates and depends on the composition of funding from banks to banks.
But there will be a small increase in cost of funds and for most banks, depending on nature of loans they have, whether they have a largely floating rate basket of loans where they can pass on the cost is what will ultimately reflect on whether net-interest margins (NIMs) get impacted or not. I would not jump to any conclusion that NIMs will be impacted for the banking sector.
Q: What about your own NIMs?
A: Axis has raised capital recently. So, we are in a bit of a privileged position because of the capital. We should do well against our NIM guidance.
Q: What about non-performing loans (NPLs), by when do you see creation of new loans declining?
A: On NPLs, as growth slows down and interest rates pick up, it is inevitable that delinquencies will see a bit of rise up and we are clearly in a cycle where delinquencies are rising.
There isn’t a big shift based on the numbers that we see and therefore, I don’t expect to see huge shocks or surprises. But it’s fair to assume that non-performing assets (NPAs) could keep ticking up a bit.
Q: There are a lot of big data events before September 20, RBI policy, what do you expect from the central bank to do?
A: It is clearly evident that RBI wants to take some time in figuring out what to do and they want to get a lot more data ahead of them before they take a decision. I don’t think they are going to change the repo rate. But I hope it will give RBI some elbow room to do something on liquidity because liquidity is tight.
If we maintain tight liquidity environment for a very long time then that will impact the health of companies and specially the smaller ones. So we would hope that RBI would use the first available opportunity to ease liquidity.
Q: What do you mean when you say liquidity, you mean CRR cuts, open market operations (OMOs)?
A: Liquidity right now is a couple of different things. There are restrictions on the marginal standing facility (MSF) window, there are restrictions on need to maintain cash reserve ratio (CRR) at 99 percent. So it is not just the CRR ratio but also the detail of that regulation, which can have an impact on the tightness in the mkt. We are hoping that RBI would look at all that and at least simplify.
Q: RBI is offering to swap dollars, you are getting FCNR accounts cheaply, and also banks can now raise more tier I capital in the form of overseas bonds, again there will be swap cheaply by RBI below market rates, how much money are you expecting to raise from these two windows?
A: Both the moves of FCNR and increasing the leverage ratio for raising offshore money and converting it into rupee are great because they help the long-term liquidity position and also allow large ticket forex into the country. Since the window is open only till November end, I am sure a lot of people will be looking at how to take advantage of that ability and we would too, given our overseas presence will definitely have the ability to use both those windows.
Q: Overall, how much money do you see coming into India upto November 30?
A: For the industry, the expectation could be anywhere between USD 8 billion and USD 10 billion and that should look like a very different current account deficit (CAD) position.