In the recent past, some PSU banks have moved on bank rates. In an interview on CNBC-TV18, SS Mundra, CMD of Bank of Baroda said, the bank will relook at base rates if there is a softening in the cost of deposits.
In a bid to curb rupee's fall, the Reserve Bank of India (RBI) on Monday banned banks from proprietary trading in domestic currency futures and the exchange-traded options market.
Sharing views on this measure, Mundra pointed out that PSU banks were never involved with proprietary trading too much. "Maybe when the Future was introduced in the initial phases probably volumes were higher and there might have been an elementary or proprietary trading at that point of time."
Meanwhile, he does not expect any RBI action on repo rate, but sees a possibility of a CRR cut depending on how liquidity scene pans out in the next few days.
He further added that corporate requests for debt restructuring hasn’t completely gone off, but the intensity has certainly reduced.
Below is the verbatim transcript of SS Mundra's interview on CNBC-TV18
Q: We understand that banks have been asked to stop proprietary trading in domestic currency Futures basically only act on their client’s behalf and not their own – could you confirm whether that is true?
A: Yes. That is a fact. As the market has been evolving and as the regulatory frame work has been in the last few months, this is more or less the situation what you are mentioning.
Q: Were banks engaged significantly in proprietary trading in the forex market at all, banks like yours?
A: It was never, I won’t say. As far as the public sector banks are concerned, I can speak for them. I won’t be able to speak for the industry as a whole but it was never that kind of significant proposition. As far as I recall, when the Future was introduced in the initial phases probably volumes were higher and there might have been an elementary or proprietary trading at that point of time. But as the regulation has evolved thereafter this is not very significant.
Q: Currently, what would you say ballpark the size of that proprietary book might be for the entire banking community - private and public?
A: Sorry, you are asking me the wrong question. I mean to say, the treasury guys who are dealing this on a day to day basis would be able to comment. At my desk these are not the volumes which I would be tracking on a day to day basis. I won’t be able to comment on this.
Q: Let us talk about what is your expectation from the Reserve Bank right now because one view seems to be that since the liquidity has improved with the way liquidity adjustment facility (LAF) has moved over the last few days/weeks maybe a cash reserve ratio (CRR) cut is not warranted in the next RBI meet, would you concur with that view?
A: The position at this point of time, if I look at the situation as it is today I am not expecting any action on the repo rate at this point of time. On CRR we are at this point of time where there is 50:50 situation. There maybe some possibility depending on how in the coming few days the liquidity position pans out. That is how I would like to put it.
Q: Some public sector banks actually moved to cut their base rates as well – will Bank of Baroda be considering that?
A: One, I don’t do any movement in base rate because my neighbour has done, that is never the criteria. Having said that, base rate is an outcome of certain elements, certain components which go into it. If one would recollect and after we had entered in Q1 of this year I had mentioned that we would access our cost of fund which is a major element. We see there is a leg room or there is a possibility, there is a softening in cost of deposit we would certainly consider, have a relook at the base rate.
I had also articulated where this softening could come because a significant amount of high cost deposit which were contacted during the last year is coming up for review. During this quarter and this may bring a softening impact. This is what I had explained. I think more or less that is the trend. I did indicate that we see some softening in the rate of interest. Now, we have ended Q1. We have more detail data available; we are gathering all those data. We will do the trend analysis, we will do the scenario analysis and maybe a week or ten days from now we will sit down in our asset-liability committee (ALCO) and take a definite call on this.
Q: This morning we have got a couple of companies who want to restructure their debt including companies like Educomp – are you still getting a lot of request for restructuring of debt. Has that intensity reduced or would you say that is still picking up?
A: If one looks at the trend, I would say intensity has reduced. It will never be a situation where we say there is no one is in the queue or there is no case. But intensity has certainly reduced. What we have witnessed in past quarters.