India's largest lender, State Bank of India (SBI) first cuts its lending rates to medium and small enterprises and some agricultural loans by 50-350 basis points. Yesterday, we had news about them raising just one deposit rate. Then HDFC Bank had also cut its base rate by 20 basis points. Now, another bank which came with similar news is Union Bank which cut its lending rates for only some segments that is the medium and small enterprises by 50-350 basis points
In an interview with CNBC-TV18, Debabrata Sarkar, CMD, Union Bank said that it is a part of their endeavour to give special emphasis to agriculture, retail advances, micro and small enterprises. However, Sarkar believes that liquidity is still very tight in smaller deposits and the bank may consider further base rate cut if RBI cuts rates further. He also expressed concerns regarding the asset quality.
Below is the edited transcript of his interview with CNBC-TV18. Also watch the accompanying video.
Q: 350 basis points is quite a cut, what would you attribute this to? Why were rates so high in the first place and what is giving you this much of an elbow room? What part of your loanees actually benefit?
A: From the beginning itself for the current financial year we have decided that special emphasis should be given on agriculture, then retail advances, micro and small enterprises. We have already reduced the retail loan, especially the mortgage loan long back after the closing, that is sometime in May.
Thereafter, we have already reduced agriculture portfolio also so that this benefit reaches the small and marginal farmers. We thought that there is a lot of scope in the micro and small, medium enterprises (MSME) sectors and presently it maybe around 15-16% of my total domestic portfolio.
Firstly, I would like to increase the percentage of growth as well as have a good kitty in my MSME advances including the micro. We have taken into consideration these two-three things which are areas that are normally not rated. The credit ratings are not very keen or maybe their financials may not be so strong. That is why we thought that irrespective of the rating, there should be some cut and the benefit should go to them. This is our main purpose to reach the small and micro enterprises.
Q: What percentage of your borrowers will be advantaged today by this 50-350 bps? Would it be 10%? What would this MSME sector constitute as a total of your aggregate loanees?
A: Presently, my percentage of the total domestic advances under this sector is around 16%. My target is to take it up to 20% by next financial year. That is the target I am looking at.
Q: What is your analysis of how competitive this sector is getting because we did hear from SBI sometime back about focusing on this sector. Now it's Union bank which has cut rates. Just give us a sense in terms of what sort of increasing competition are we seeing within the medium to small enterprises sector?
A: Certainly there may be some competition but, we are not at all thinking about the competitive factor. We think that these segments are potential segments and the benefits should reach these sectors. That is our purpose for looking into it because at the very beginning of the year, we were focusing on 3 sectors domestically, that is agriculture, SME as well as the micro and mortgage loan which is the housing sector.
And in all the cases we have reduced the rates. There is no question of competing with other banks. It is our own decision.
Also read: SBI cuts interest rates for exporters by 50 bps
HDFC Bank cuts base rate and BPLR by 20 bps
Q: What is the status of loan demand for your bank? Are you expecting that you will be able to do the 22% you did last year? At the moment how is it looking?
A: Frankly speaking, the first quarter is always a little subdued. There is not much demand in various other sectors. But, I feel that this area may be little bit monsoon led. However, agriculture started picking up and I can share that agricultural figure, retail figure, micro and SME figures are little bit up over March, though the figure is yet to come.
In that case, I feel that the supervision cost of this sector loan is little substantial as well as higher in case of the corporate credit. But, we had some issues about manpower in different branches. We have appointed good number of officers. We are having good number of rural development officers who are trained and they have deployed themselves.
Q: Could you focus on a couple of micro points with regards to this, how concerned would you be on something like asset quality in case you do increase your credit exposure to the MSME sector? How has asset quality been within this sector in the past and how do you see it pan out?
A: Certainly, asset quality is an issue in this sector. But, supervision cost as well as effective supervision is to be increased in this area. In most cases, the supervision should be closer, my RDA will be closely monitoring all these issues in respect of sanction and disbursement.
I am also emphasising to educate and create awareness among the small borrowers and that is a big challenge. If my portfolio increases, if my supervision is effective, I think we can make this segment a healthy segment in due course of time.
Q: HDFC bank cut its base rate by 20 bps. Not a great deal but it is still almost a quarter percent. What's your sense? You think other banks like yours will follow?
A: We have already done it in the earlier year itself. HDFC may have done it but, we have already done that. My base rate is 10.5% and it is quite okay.
Q: There's has come down from 10% to 9.8%. What I am asking is, is there a possibility of a further base rate cut from you?
A: Presently, I feel that inflation is a factor and if there is some sort of incurring in the policy rate by the RBI, we'll certainly consider it because some expectation was there earlier also. There was expectation of a CRR cut but, it has not been done.
I still feel that liquidity is not so easy, especially in the small deposits, savings and current deposits. Naturally, if there is a rate cut coming from July onwards, we can look into it.
Q: What about your NPLs? Your gross NPL fell to about Rs 2000 crore from Rs 2020 crore in the previous quarter. For Q4 it was Rs 1999 crore. Does it get even lower in the quarter that's just gone by, in the quarter ending June 30?
A: June 30 figures are yet to come but, we are examining. The general managers and other executives are doing the job but, it will take 2-3 days to come out with the figures.
Q: Just your hunch, do you think it will be lower?
A: The asset quality certainly is a concern and in the first quarter there is no credit demand. Maybe, the percentage there can be little bit up. But what I like to look at is corporate credit as well as other credit on core growth.
It is not terminal growth they are looking after and I am emphasizing on the average growth in all the business parameters. This will help my yield and my cost will be under control. We can monitor it and that is my purpose.