Shailendra Bhandari of ING Vysya Bank says, net interest margins were lower due to priority sector lending in Q4. "If you look at the full year NIMs, for the last several years, it has been very steady around 3.25% to 3.3%. So, we don’t see any reason why the pattern should break," he adds.
In an interview to CNBC-TV18, Shailendra Bhandari, managing director and chief executive officer of ING Vysya Bank says the Asset-Liability Committee (ALCO) will take a call on deposit rate cut soon. “Deposit growth remains a challenge in FY13,” he asserts.
According to him, net interest margins were lower due to priority sector lending in Q4. "If you look at the full year NIMs, for the last several years, it has been very steady around 3.25% to 3.3%. So, we don’t see any reason why the pattern should break," he adds.
Below is an edited transcript of his interview with CNBC-TV's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.
Q: What is your strategy going with pricing deposits and loans for the next few months? We are seeing very disparate kind of moves from people after the Reserve Bank of India (RBI) policy and the transmission has not been quite complete from what the RBI probably intended.
A: If you are talking about the final decision on deposit rates and the base rates, we have been tied up with our board meetings. Asset Liability Committee (ALCO) is yet to take a final decision. As of now, I don’t think there has been a uniform action, a lot of banks have lowered deposit rates. So, it looks like we will do something on that front. But being relatively medium size to smaller player we will follow the industry leaders. So, if some of the larger banks do reduce base rate, I am fairly sure we will follow.
Q: The larger banks are reducing lending rates only in specific segments and that too by only 25 basis points. That doesn’t move the needle too much. Can you explain this reluctance to pass down 50 basis points (bps) and whether you see this to be the norm during the course of the year that the Central Bank might indicate something, but banks might be reluctant in transmitting all the cues?
A: In all fairness, the last two times when the Reserve Bank raised the policy rates, which was from 8% to 8.25% and then to 8.50%, most of us didn’t raise our base rate. So, to that extent, it is not entirely a surprise that some of these banks are reluctant to drop it because it would come at a cost to the margins.
If you take out aberration, we saw at the end of March, when deposit rate spiked over 10-11%, but otherwise the longer-term deposit rates, the one-year deposit rates are not substantially different from what they were in February.
So, it is not unfair for banks to watch and see how deposit rates play out. Obviously, if the RBI follows this up, whether this was a one time policy move or whether this is going to be a directional move, I do imagine at that at some stage banks will act.
Q: The statement that the RBI put out post this 50 bps cut saying, “we don’t have that much more headroom to move on whole lot of rate cuts?” Is that what is keeping peoples hands so constrained?
A: I don’t think banks are necessarily waiting and watching the TV to see whether somebody from the regulator has made a new statement. The basic issue, which is driving banks, is the demand for credit, the cost of funding that credit and the NPAs. I think the factor, which should reduce or which should lead to a drop in lending rates, would be two-fold. One would be reduction in the deposit cost, which is yet to happen in a material sense. And the other is if some of them are worried that NPAs are going up and they would like to reduce the burden on borrowers.
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