SBI expects more tightening before next Monetary Policy

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OP Bhatt , Chairman, State Bank of India , said more Reserve Bank of India, or RBI, measures are likely between now and the next Monetary Policy. "We may see some fresh non-performing assets. Some stress to borrowers is being felt."

On the PLR raise, Bhatt said, "In January this year, we had reduced our PLR by 50 bps. Some banks reduced by 25 bps, while only one did a 50 bps. The entire banking industry did not do that. Since then RBI has been increasing various liquidity tightening measures. The CRR and repo rate have gone up. What we have done today is merely to restore our PLR to where it was in January. Even now we have not raised this so as to say."

KC Chakrabarty , Chairman, Punjab National Bank said it does not expect fresh NPAs to crop up at this moment.

Chanda Kochhar , Joint Managing Director, ICICI Bank , said system-wide liquidity is now becoming tighter. "The situation was very different a few months ago. It is tighter now. So, banks will have to look at both deposit and lending rates. Various banks look at deposit rates - wholesale and retail - differently. But in general it will have to be looked at on both sides."

 

Excerpts from CNBC-TV18's exclusive interview with OP Bhatt, Chanda Kochhar, and KC Chakrabarty:

 

Q: Should we expect that you would go beyond restoration?

 

Bhatt: We would like to watch. The way RBI has worded its latest measures it is possible that there is something more to come. It may come between now and the next Monetary Policy. So, we would like to wait and watch, measure our actions, and then do something.

 

Q: The point is that funds are available because stock markets are not doing too well. So, depositors may be willing to come even for current levels. Do you think initially at least banks will only target lending rates and not deposit rates?

 

Kochhar: While funds are available, we also have to realize that system wide liquidity is now becoming tighter. The situation was very different a few months ago. It is tighter now. So, banks will have to look at both deposit and lending rates. Various banks look at deposit rates - wholesale and retail - differently. But in general it will have to be looked at on both sides.

 

Q: If you raise rates across the board, you could land up with higher amount of stressed assets. Do you fear that?

 

Chakrabarty: As long as growth rate in the economy stays at 8%. I don't think increasing the interest rate will do that. But because of increasing interest rate and various other measures if growth rate comes down drastically, then the question of stresses asset arises. I don't think at this particular stage, even if we are able to grow at 8% or 7.5%, the problem of stressed asset is visible. Until now, it is not there.

 

Q: Do you share that view?

 

Bhatt: We need to make a distinction between stressed assets and loss making assets. I do see some amount of stress building up in the system, which could stay for 3-6-12 months. I think that entrepreneurs, businessman, and banks should together be able to work most of them out of the stress situation into a normal situation. What percentages of these stress assets will covert to loss asset is anybody's guess. But it will be a very small percentage.

 

Q: Would you agree that this would be the situation or do you think that you will not pass on 50-bps to everybody? Perhaps, banks will modulate and may be some home loan borrowers would be spared and may be given only 25-bps because they could be the vulnerable sections?

 

Kochhar: In terms of customers across, I am great believer that innovation comes out of necessity. When the corporate sector faces challenges, it would look at working much more efficiently and managing some of these cost increases, building them in their planning process, and still maintaining profitability.