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Apr 17, 2012, 03.40 PM IST | Source: CNBC-TV18

No stress on deposit rates till credit growth picks up: SBI

The Reserve Bank of India cut interest rates for the first time in three years by an unexpectedly sharp 50 basis points. This rate cut will certainly translate into savings for banks, says Diwakar Gupta, managing director and chief financial officer, State Bank of India (SBI).

Diwakar Gupta, MD,CFO, SBI

The Reserve Bank of India cut interest rates for the first time in three years by an unexpectedly sharp 50 basis points. This rate cut will certainly translate into savings for banks, says Diwakar Gupta, managing director and chief financial officer, State Bank of India (SBI).

The central bank has also raised the borrowing limit of banks under marginal standing facility to 2% from 1%. This step will make a concrete difference because banks with now be able to get resources at cheaper rates and it will give them some room for rate cut , he told CNBC-TV18.

Meanwhile, Diwakar admits that deposits will be affected because of rates offered on national small savings and tax bonds, but he doesn't see an upward pressure on deposit rates till credit growth picks up very significantly. On the contrary, he expects deposit and advances rates to ease ahead.

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: Will the banking system pass this 50 bps?

Gupta: The very fact that the marginal standing facility has been upped 2% makes a concrete difference to banks. Banks which have been raising resources at more than 9% have a clear window in which case they can raise resources at below 9% or at 9%. It gives them some more insurance in question against liquidity volatility, which could allow them to factor their deposit rates in at a little lower. It will certainly translate into a saving for banks and makes it much easier for banks to take a view on a rate cut.

Q: Will this be on both legs, deposits as well as lending? Will there be more of deposit cuts?

A: Naturally, it will help the banks to raise resources at a cheaper rate and they can cut down on deposits and pass on to loans and advances.

Q: Will it be the same proportion?

Gupta: That is very hard to say because deposits are in different buckets, they price at different maturity and the duration is different. Whereas most advances are floating at least 60-70%, most banks would be repricing in real time, so they may not be in the same quantum initially, but eventually it should catch up.

Q: How would you see this quarter panning out, will bank margins be under pressure?

Gupta: The numbers of March, 30 may not be indicative of growth year on year. There was a spike on March 30 and the banking system would already be seeing a fair reduction in both deposits and advances. The important thing is deposit taking will be affected because of rates on national small savings and tax bonds.

But, till credit growth picks up very significantly, I do not foresee an upward pressure on deposit rates. On the contrary, there is a case for deposit and advances rates coming down simultaneously, though not by same quantum.

SBI stock price

On October 01, 2014, State Bank of India closed at Rs 2423.00, down Rs 19.35, or 0.79 percent. The 52-week high of the share was Rs 2833.85 and the 52-week low was Rs 1455.95.


The company's trailing 12-month (TTM) EPS was at Rs 147.33 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 16.45. The latest book value of the company is Rs 1584.34 per share. At current value, the price-to-book value of the company is 1.53.

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