Expect RBI to maintain liquidity: Central Bank of India

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Public sector lender, Central Bank of India is hopeful of maintaining margins for the complete year.

Speaking to CNBC-TV18, MV Tanksale, chairman and managing director, Central Bank of India said, "I still maintain my guidance of 3%. I was around 3.2% as of March 2011 and I still feel that 3% should be a maintainable margin."

The monetary policy is slated for January 24 and Tanksale expects the Reserve Bank of India (RBI) to maintain liquidity in the system for economic growth of the country.

"As a banker I would say that the basic requirement which the central bank has to take care is that despite borrowing from the government would there be adequate liquidity available for the private sector, the markets."

Below is the edited transcript of Tanksale's interview with CNBC-TV18. Also watch the accompanying videos.

Q: There has been a slew of data which has been showing that growth is not as bad as we thought. Nevertheless you must have read the widely circulated interview of the RBI Governor. What is it that you are expecting on January 24?

A: Its quite obvious that if the economy shows some kind of stability and certainty for future, growth has to be seen. Three quarters did not give us that kind of a great feel that whether 17% or 18% would be achievable, but it appears that this quarter should be better off. We should be in a position to clock around 17-18%.

Q: Are you expecting something in the nature of a CRR cut on January 24th? Some people are expecting both a CRR and a Repo rate cut and there is a body of economists who are expecting neither. What would you expect as a banker going by the kind of data and the interaction that you may have had with the RBI?

A: Instead of guessing what would be the interest cut, as a banker I would say that the basic requirement which the central bank has to take care is that despite borrowing from the government would there be adequate liquidity available for the private sector, the markets. If liquidity is ensured in the way, with various monetary measures the purpose should get served. It seems that with those measures RBI will ensure that liquidity is available for growth.

Q: One of your peers has actually moved on lending rates. They have reduced their PLR by about 10 basis points. By when do you see actual lending rates in the system coming down? Would you be moving on reducing then from March or April onwards as some of your peers have been indicating?

A: I definitely appreciate our peers having reduced their base rate by 10 bps. Atleast they have given a feel to the market that reversal is seen and it could be seen going forward if RBI's intention of containing inflation is successful.

Let me tell you that nobody has touched upon interest rate on deposits and cost of deposit per se has definitely remained same. All of us in the industry, as players would definitely like to watch what happens on January 24 and would take a call thereafter.

Q: You are not seeing this rise in savings rate as a competition at all? Are you witnessing any migration of deposits?

A: Right now it is still not being felt, but let us see what happens going forward because the public sector banks are all holding on to the 4%. Our client base will probably continue with us based on the kind of relationship. On the services side we are definitely at par today. So, right now there is no pressure I would say.

Q: No migration of deposits noticed?

A: It is really not very visible.

Q: On which side of the debate are you on the savings rate increase by some of your peers and there is also a talk that the finance ministry is now talking about a portability of savings account number. Do you think that will have any kind of impact? Is it interesting to the bankers?

A: As far as rate of interest is concerned, for public sector banks it is a big call because all of us have the big base of savings bank deposits. One has to always bear in mind the kind of service cost we public sector bank have. We have been servicing account holders right from Rs 100 balance to Rs 1 lakh or Rs 10 lakh balance.

It doesn't get evened out as it is beneficial to other players who have gone and increased rate of interest. I very strongly feel that when the cost of operations is higher on this particular product, there is a difficult opportunity for us to raise the rate of interest.

On the portability of savings bank account, I feel that it is a good thought but lot of interfacing on technology and lot of innovations will have to be done. One account number which is opened in one bank remains or it is not available across the industry to anybody else. How exactly it will work out through technology we are not sure.

But the intention is absolutely right that if the mobile numbers can be portable, why not the account number be portable? People can choose the bank without getting into hassles of a new account opening and the new KYC norms to be complied with.

Q: Your gross NPLs rose in the quarter that you last reported by almost what 30% rise. Therefore the percentage also went up from 2.29 to 2.9%. This despite the fact that you have not entirely migrated to computerized of NPLs that was to happen by the end of the current fisc, isn't it? So should we understand that we are going to see more slippages?

A: When I declared the September results, I made it very clear to the industry that my bank completed the core banking only in December 2010. All my peer banks they completed in 2007-2008 and they got two years plus for cleansing of data. We have to realise that when we migrate from manual system to core banking, there are lot of issues with regard to cleansing of database.

Thus Central Bank of India was in one way not a beneficiary of that opportunity. Still we started working from July onwards, in September I covered Rs 10 lakhs and above, in December I am covering Rs 5 lakhs and above and by 2012 March, I will be declaring of course 0 level. At 0 to complete NPA recognition will be only through the core banking. Thus the impact will definitely be there. I gave guidance that my 2.99% may go up.

Q: How do the numbers look like ahead?

A: Now that my December quarter is over I may not be in a position to talk on any numbers.

Q: Do you think the increase in NPLs will be only because of the system recognition or are you noticing the impact of a slowdown as well?

A: Both the impacts are there because it is a well know fact in the industry that stress is there. With the stringent norms of recognition, there is some stress. There will be a combined effect of that as well as recognition through the system.

Q: Which are the areas in your bank where you are noticing more stress, especially in Q3? Is it largely power, is it even non-power infrastructure sectors, if you can give us some leading sectors?

A: Please permit me to reserve my comments because I must maintain the position for Q3 which is already over. In general there is no stress on power in this quarter at all.

Q: What may you do by way of margins for the full year?

A: I still maintain my guidance of 3%. I was around 3.2% as of March 2011 and I still feel that 3% should be a maintainable margin.