Credit growth to pick up in H2FY10: SBI

Q: Would you say this is the last of your deposit rate cuts, it would be difficult for you to cut deposit or even lending rates much going forward?

A: It will depend on the interest rate scenario going forward. First of all I would like to mention that our results are likely to come up, I would not be able to talk much about our bank but I would like to say in general that at the current levels of liquidity, we don't see substantial changes in interest rates going forward especially they may not go up in the near future. I expect them to be reasonably steady. Credit growth as you know has not been very robust, upto August the industry as a whole grew just by 1.2% year-to-date (YTD) but there are some positive indications. The industrial production had grown by 4.2% for the quarter ended June and in July the industrial production grew by about 7.8% coupled with a 6.1% growth in gross domestic product (GDP) seen upto Q1 this year. We feel that credit growth might pick up reasonably well in the second half of this year. There are indications to show that autos and cement and steel dispatches have been going up. Steel prices have also been increased by some companies. All these we feel are indicators that credit growth might pick up in second half much more strongly as compared to the first half.

Q: Earlier you have been on record saying that credit growth which is starting to pick up could even accelerate to 25% for fiscal year 2010, are you seeing those signs in September, in early October that credit growth could pick up to that extent?

A: Some segments of the credit portfolio of all banks are seeing growth rates to this extent. On the retail side, auto loans, housing loans and so on, would see these kinds of growth rates this year. We see that the auto sales also have gone up by over 30%. So considering these facts I feel that depending on which segment we are talking about we might be able to see 20-25% growth rates and credit pick up this year. But on the industrial side, this 7.8% growth in industrial production during June 2008 is a positive sign if this trend continues. We expect for the year as a whole industrial production to grow by about 7-8%. If that were to take place, the rate of growth in the second half has to be reasonably higher than what has been seen in the first half. So from that point of view, I still feel credit growth can be substantially more than what it has been in the first half; 1.2% has been the growth seen in Q1 i.e. upto August this year. I think the rates in the coming periods will be much more than this.

Q: Some of your other public sector peers have announced cuts in lending rates through the last two weeks as festive offers, is that something SBI is looking at as well?

A: Like I said, I cannot talk to you about what SBI is planning to do or is not planning to do at this point of time.

Q: I am asking if there are currently any loan rate cuts available.

A: If the liquidity levels continue at this level and credit pick-up does not take place to the extent we expect, we might consider a rate cut also but I cannot say; that is all in the realms of what happens in the future. So it is difficult to predict at this point of time.

Q: There has been extremely strong dispersals specifically in the auto loan category, do you see that pace being maintained and where is it that you have seen the biggest jump, is it within the passenger vehicles, two-wheelers or is it the commercial vehicle (CV) space where things are picking up now?

A: Both in the passenger vehicle segment as well as in CV segment, the sales have gone up and the passenger vehicle loans atleast most banks will be seeing a growth rate of over 30% in credit especially banks which have not moved out of retail loans. I think this trend will continue for some more time. The employment market also is seeing some kind of growth as you may have noticed, people are coming back to hiring as compared to the first half of this year. So I think with job market improving, auto sales will also continue to pick up and this momentum will continue for some more time. The housing sector and the auto sector are likely to see reasonably good growth in credit as far as banks are concerned.

Q: We have a monetary policy coming up this month as well. As a country's largest bank, are you expecting to see any signals from the Central Bank on the interest rate front because of inflation hardening?

A: Yes. inflation is trending to be going up but if you notice the underlying causes, it is largely because of the change in the base effect and also to some extent on account of supply side effects factors in the area of agricultural commodities due to extensive drought conditions prevailing in many parts of the country. But as a whole, there is no demand side pressure on the economy which is causing this inflationary pressure. So till that happens, I don't think RBI will think in terms of increasing interest rates. With credit pick up also being reasonably modest, it is quite modest so far, that is one more reason why at this point of time, I feel RBI may not consider any changes in interest rates.