Besides announcing a cut in the CRR in its mid-year monetary policy meet, the Reserve Bank also raised provisioning on restructured assets to 2.75 percent from 2 percent earlier. How will this impact banks?
In a discussion on CNBC-TV18, Diwakar Gupta of SBI said the revised provisioing does not worry him as CRR cut will leave additional money with the bank. He feels the impact will be neutral for SBI.
Below is an edited transcript of Diwakar Gupta's interaction on CNBC-TV18:
Q: What have you made of this- you have big whammy coming in terms of the higher provisioning for restructured assets but there is little more money in your hands because of the CRR cut – do you think another round of cuts in deposit and lending rates is round the corner?
A: For State Bank, the additional 0.75 percent (provisioning) translates into Rs 200 crore, which is manageable. The CRR cut releases about Rs 2,500 to Rs 3,000 crore which is an equal amount of earning on the interest side. The two measures are neutral to State bank of India. We really are not very worried.
As far as lowering of rates is concerned, we will have to wait and watch now because we have been the first mover anyway. The whole system needs to be moving towards lower rates if that is to happen.
Q: So you would not expect the system to move to another quarter percent cut up until December, till the festive season is over?
A: It all depends, if the economy begins to improve and there is an uptake in credit, then even in December that might not happen. We need something a little more structural in terms of the levels for rates to come lower from this, that’s my current assessment.
Q: When you say structural you mean the liquidity deficit should decrease or do you mean there should be a repo cut?
A: I think liquidity at the end of the day determines what you pay on deposits and that brings down rates. But given the huge amount of CDs and CPs the repo cut also will be equally effective or at least significantly effective in affecting rates either which of them but we need some.
Q: What is your sense - is there any specific sector that can get the benefit at all of lower rates? Vunerable segments like SME or MSME, or do you think it will be impossible for your bank to lower rates for any sector?
A: The answer to your question lies in how specific banks feel about problem of a particular subsector. As far as the overall numbers are concerned, obviously the current announcements don’t give any further cushion for a rebate per se – so these decisions will be driven by business considerations. As far as we are concerned, we have done our bit. On restructuring, it is really less than one percent of the PBT for us. The restructuring provision itself is quite neutral. We are not really very worried about the additional provisioning there.
Q: The credit growth assessment or forecast has been kept at 16 percent, lower from the earlier 17 percent. Will banks manage even that because at the moment you are running at 15.4 percent?
A: It is very difficult to say what the number will be. There are investors and people who can have an outside view of the economy, and there are executors and players like promoters and banks for whom sentiment today is actually much more important that what the exit number is likely to be. It is very hard to say whether it is going to be 16 or 18 percent. We are striving to see that consistent with portfolio quality. We push as much credit as we can, but ultimately sentiment will determine the off take. It is where sentiment is important even though the numbers may or may not speak the same story.