Public sector lender OBC expects deposits and advances to grow 15% and 19% in FY12 respectively. In an interview to CNBC-TV18 SL Bansal, chairman and managing director, OBC said: "This is a fairly good growth given that we have shed bulk deposits and industry has grown by 14% on deposit front."
He also informed that though slippages in Q4 will be largely similar to those in Q3, but the recovery has been very good.
Below is the edited transcript of the interview. Also watch the accompanying video.
Q: What prompted you to cut the base rates? Is there not already a problem of not enough deposits coming in, so are you not cutting deposits but only cutting the base rates?
A: We have cut our base rate by 10 bps from today itself. We have cut our deposit rate for one year from 9.75% to 9.50%. We have increased our senior citizen rate from 50 bps to 60 bps. We have taken a conscious decision on all these things because during the last two months Reserve Bank of India has reduced the cash reserve ratio 50 bps in the month of January, 75 bps in the month of March. It has eased the liquidity and released some funds, which enabled to earn some profit out of that. We have tried to pass on all these benefits to the customer in a big way.
Q: At the end of these rate cuts how will your cost of money move? Do you expect your cost of money to fall by a few basis points?
A: Cutting of base rate means from the day one I will be earnings less. About 60% of my advances are linked to base rate. Out of Rs 110,000 crore, roughly Rs 58,000 crore is linked to the base rate, so this 10 bps cut will translate into loss of about Rs 58 crore on annualised basis.
Similarly increase of 10 bps for senior citizen - I have not calculated how much incremental deposit will flow in, since we are the market leader in this segment so we expect something and my cost of deposit will go up on this segment only. Simultaneously, cutting 25 bps on one year deposit, normally one year deposit is in the range of 65 to 70 of the total deposit, which is again in our bank 75% of our deposit is in term deposit base, now 63% of 75% translated into 45% of total deposit within one year segment. So cutting this 25 bps will give me some cushion and I will be in a position to maintain revenue neutral going forward.
Q: There were some comments which came in from the management that you have taken a bold decision before the RBI policy on April 17th. In light of what you have done in terms of the cuts can you give us an expectation on what exactly do you expect on April 17th in terms of the RBI movement, one and second, how do you expect the liquidity scenario to pan out then?
A: During the last 20 days liquidity has improved a lot; the deficit has come down Rs 1 lakh crore. Going forward, I believe that the government of India will start spending and this money will flow into the system. Going forward, the deficit will be in the comfortable zone of plus-minus 1%.
Inflation is not in the comfort zone and current account deficit (CAD) is above 4%, rupee is also under pressure, so all these things indicates RBI may take a decision or may not take a decision. Interest rate peak business is over and going forward the interest rate is going to fall, may not be immediatly, but maybe June onwards.
Q: What have been your loan growth percentages for the fourth quarter as well your deposit growth percentages?
A: From Q4 our balance sheet have not grown much because we have not grown much on the advances front and similarly we have tried to shed bulk deposit. Our bulk deposit has come down by Rs 4,000 crore which is equivalent to 10% of our overall bulk deposit portfolio. We have taken a conscious decision that we will not grow too aggressively.
In the month of March the deposit rates were as high as 12% for the short-term period and raising deposit at 12% and lending at base rate plus 1%-1.5% doesn