Saikat Das
moneycontrol.com
Lowering interest rates on fixed deposits will not necessarily lead to a flight of capital from banks to other asset classes like mutual funds and gold, feels Shiva Kumar, the managing director of the
State Bank of Bikaner and Jaipur (SBBJ). That is because people who put money in fixed deposits are different from those who invest in mutual funds and gold, says Kumar.
In line with State Bank of Saurashtra and State Bank of Indore, SBBJ too is expected to be merged with the State Bank of India, the parent bank, in due course. According to industry sources, SBI is going slow on the merger as it tries to absorb the cost of earlier two mergers. Gradually, all SBI group banks will be merged with the parent.
In exclusive interview to
moneycontrol.com, Kumar also underscores the rationale on abolishing the cash reserve ratio, the share of total deposits banks need to keep with the Reserve Bank of India. He admits that bad loans cannot be avoided when the economy is in a downturn.
Following is the edited excerpt of the interview: Q. What is your view on declining interest rates?A. Interest rates have to go down. This is the current trend. To reduce rates, banks cut both deposit and lending rates. At SBBJ, we have already reduced lending rates on home, car and SME loans. We are comfortable with a net interest margin of 3.90%, recorded in April-June quarter. At this point of time, we are not planning to reduce deposit rates immediately. However, nobody cuts base rate so far in the recent time. As and when the market moves on, banks will start decreasing base rates too.
Q. Deposit rate cuts: a shift from FDs to MFs and gold?A. It is a part of their investible funds for the people who invest in gold and mutual funds. I don’t see any flight of deposits from banks to mutual funds and gold.
Shifting money from fixed deposits to gold as investment does not happen much in India. People do buy jewelry but not for investment. For large mass of people, mutual fund is still a complicated business. As market matures, there will be far more investment in mutual funds than what it is happening today. Gold is not an alternative. Mutual fund is an alternative but to a limited extent.
Q. Deposit growth has been sluggish. Will it pick up going forward?A. The latest deposit growth (as on August 24) is at 14.12% as against the projected 16% by RBI for FY13. Right now, the money generation is a challenge due to slowing down economy. The second half of any financial year (October-March) is more active. I expect more deposits to come in the second half. The banking industry can very much achieve the 16% mark.
Q. There has been an ongoing debate on abolition of cash reserve ratio (CRR). What is your reading about it?A. CRR has its own philosophy to which it was set up. RBI has its own reason to keep it. From bankers’ perspective, we raise money and expect return on that. CRR money goes away without any interest. For banks, it is definitely a drain on profits. It is definitely a burden on banks. If depositors’ security is a concern, then the regulator should pay some interest on CRR.
RBI normally does not pay interest on CRR. Some 20 years back, it used to pay interest but beyond 3% when CRR had gone up as much as 15-16%. With changing pace of time, discussion on this issue should take place. You cannot continue to do banking as you used to do in the past.
Q. Are you shedding bulk deposits?A. Our present share of bulk deposits is 13% as of August 31. In March, it was at 15%. We do not depend much on bulk deposits. Because of this, we enjoy a good NIM (3.90%). When a bank depends too much on bulk deposits and then it could be a liquidity issue if it brings it down drastically. Traditionally, any deposit of 1 crore or above is considered bulk. The ministry wanted it below 15%.
Q. Do you plan to focus more on retail credit?A. Loans are not growing like deposits. There is not much demand from corporate side. We are doing much retail loans as opportunities are limited for loans to companies. However, retail growth happens slowly. The advantage of retail loans is that customers bring various business including current and savings accounts.
CASA is a cheap source of funds. It is very critical for a bank to have significant share of CASA, which is at 36.5% to total deposits at SBBJ. If you don’t do retail, you will not get this advantage and thereby cannot lend big corporates at competitive rates.
Q. How do you explain the threat from rising bad loans?A. Bad loans or non-performing assets (NPAs) is a challenge definitely. If economy is not doing well, you cannot escape NPAs. It is just not possible. However, retail loans have one advantage. The ticket size is smaller comparatively. So, you can withstand that pressure (NPAs). It is far more easier to deal with.
For corporate, restructured accounts are also necessary. Companies should be given time to come out of difficulty. Better growth path will come with the change of economic conditions. People who are sincere should only be given opportunity to revive their declining business. I respect the view that companies who went burst due to miss-management should not be allowed to enter CDR cell.
At the same time, I believe, if somebody is suffering due to his inefficiency, he should be given a second change to come back. There is no harm into it. If 50% of that category comes out of the woods and repay bank loans, it will be good for the whole economy.
Q. What are your expansion plans?A. We are expanding our branches. Last 12 months, we have opened 50 branches and will continue to inaugurate another 50 branches in next 6 months. Our total branches are at 960. As a part of golden jubilee celebration this year, we want to reach 1,000 mark by December.
We are basically a Rajasthan centric bank but we want go beyond it. In all major cities, we have now made our presence. We will be selling high value products there. We have recently introduced car and home loans facility through online mode. You can apply for it even in the mid night and get a sanction letter, which you have to produce along with required documents at a branch.
In the last seven months, we have sanctioned more than 200 home loan accounts (of Rs 25 lakh average ticket size per loan) while it is at 700 accounts for car loans with an average ticket size of Rs 5 lakh. Online application can also fetch some rate reductions. Our loan book stood around Rs 50,000 crore of which 50% are retail loans in the first quarter.
Q. Any capital raising plan on the anvil?A. In FY12, we had raised Rs 780 crore via rights issue and in the second half we mopped up Rs 500 crore as tier II capital via bond issues. As of now, we are quite comfortable. Our capital adequacy ratio is about 13%. I don’t anticipate the need of further capital this year. We are expecting better profits. We will be able to plough back some more capital.
Q. What do you expect from RBI’s mid quarter monetary policy on September 17?A. Any CRR cut will be good for banks and the economy as well. Banks are facing challenging time. Interest rates have to go down sooner or later. With the higher rate of inflation, RBI might take some more time to cut the policy rate (the repo rate).
saikat.das@network18online.com 
