According to Ashish Parthasarthy, after RBI issues free bank-branching circular, opening of new branches will become easier. He adds that the measures issued by the new RBI governor, if executed well, will change the landscape of banking in longer-term
Ashish Parthasarthy, head treasurer, HDFC Bank says the RBI’s move to free bank-branching for domestic scheduled commercial banks in every part of the country is a welcome measure.
In an interview to CNBC-TV18 he says the long series of measures announced by the new RBI governor, if carried out, will change the landscape of the banking space in the longer-term. He is looking to raise reasonable amount of funds under FCNRB window "may be in next two months".
Meanwhile, Parthasarthy says the deadline set for new bank licences to be issued by January next year will increase the competition among banks. “We have seen competition coming earlier as well and it makes the existing banks work much better, much efficiently. At the end of the day it provides much better output to the end consumer,” he adds.
Below is the verbatim transcript of Ashish Parthasarthy's interview on CNBC-TV18
Q: What did you make of some of the comments by the Reserve Bank of India (RBI) governor with regards to giving banking licenses more freely as well as not too many approvals required to open banking branches? How much of a landscape or structure of the banking sector could change because of this?
A: What the announcements do is, with a branch-banking perspective it makes it easier for existing banks to open branches. It is not that banks were not getting licenses but they are making the process much easier. New licenses were coming for sometime and now there is a reasonable clarity that they will happen by the end of Q1 of next calendar year.
We have seen competition coming earlier also and competition always makes the existing banks work much better, much efficiently. At the end of the day it provides much better output to the end consumer. So, it is always welcome and will take some time for the landscape to change, it is unlikely to happen soon but over the next five years, you could see very different banking landscape if all the intentions in the speech get carried out.
Q: More immediately, this window has been opened up, you can now raise overseas debt upto 100 percent of your tier I capital, aren’t you using it at HDFC Bank?
A: Whether it is 50 percent or 100 percent, we use it when it makes sense. We have heard on the show that it does make a lot of sense to use it more now. So, we would be looking to raise borrowings and use it for funding our domestic balance sheet because it makes a lot of economic sense to do that.
Q: You are looking at it, is it on the table?
A: Most of these borrowings are in terms of bilateral deals between banks. So, it is not a public market kind of issue and such things keep on happening. It is not like we have not borrowed earlier when these measures were not there, we have done that earlier as well
Q: You are now getting an attractive swap after November 30, will you not get that attractive swap?
A: We will go ahead and look to borrow but it will not be an issue. It is going to be deals between banks, bilateral deals. So, we will definitely look at it because it makes a lot of sense.
Q: What about the FCNR (B) window, have you all already offered a bit more attractive rates to get money?
A: Even before this measure we have been raising FCNR deposits. We have built a reasonably good NRI business to get both FCNR and non-resident external (NRE) deposits and will continue our efforts. Again the economics of that deposit have become much more attractive than before. So, the efforts will be there and we will look to raise reasonable amount of funds under that scheme maybe over the next two months.
Q: Although the shorter-term liquidity stress maybe alleviated, the structural problems of the banking sector still remain, asset quality pressures, loan growth problems, higher interest rates. Do you think we might see a lot more base rate hikes by many banks as long as interest rates remain at the higher end?
A: It all depends on what kind of domestic liquidity gets created over the next two months through these deposits. The estimates vary and a lot of estimates are in USD 10-15 billion kind of a range across the two schemes. If that kind of money gets created, I don’t see base rates increase in the system because deposit rates will cool off.
There will be general stability in interest rates. So, I do not see rates going up and it all depends on the monetary stance taken by the RBI when they unveil the policy on September 20.