After country’s largest lender State Bank of India (SBI) cuts deposit rates to 8.75 percent from 9 percent for 1-3 years, other banks are likely to follow the suit.
Public sector lender Punjab National Bank (PNB) is expected to revise its deposit rates in the next 15 days, says CMD KR Kamath. "We are at 9 percent now and we have also been looking at it because we have enough liquidity in the bank to meet the reasonable credit demand that can come," he adds.
However, the call on lending rate will depend on credit pick up, Kamath adds.
The credit growth of the bank is around 13 percent currently and is expected to touch 15 percent by the end of this fiscal.
Below is verbatim transcript of the interview:
Q: There was an unscheduled rate cut by SBI. They have cut their one-three year deposit rates by a quarter percentage point. Now they stand at 8.75 percent, what is your one-year rate and will it be lowered shortly?
A: We are at 9 percent now and we have also been looking at it because we have enough liquidity in the bank to meet the reasonable credit demand that can come.
Now with the credit demand not going in a big way, there is no meaning holding on to the liquidity and accumulating and investing such amount in some other investment instruments which gives you less than what you pay on the deposit.
We will just wait and watch and in case the credit pick-up doesn’t happen then we may also have to look at reviewing the interest rates and deposit rates.
Q: How long will you take before you make that decision?
A: We have a credit policy in front of us in another 15 days and we may take maybe 15 days time to look at it.
Q: You expect this to become a flood, most of the bankers to follow suit now that the guy with 25 percent market has given you the elbow room?
A: I think it depends on respective banks’ asset liability management (ALM) positions. We also find that some of the banks are still in the wholesale market beyond 9 percent. It depends on the respective banks’ ALM positions and those banks who are positive on liquidity may definitely review the rates of interest and who are still having ALM issues may take a little more time.
Q: How long do banks take to convert that into a lending rate cut?
A: If you look at the lending rate cut today, the demand is absolutely on the retail side that is happening and we are lending at the best possible rates that housing loans going at base rates and auto rates, all cut at 10.65-10.75 percent sort of a thing.
Now converting it into a base rate reduction will definitely take some time because it will also have far-reaching implications on the net interest margins (NIMs). So this is a temporary phase and then we should see how the credit pick up happens and only then we will take a call on the lending side.
Q: Can you give us an indication of how much of 25 bps cut will impact the margins positively?
A: In single digit numbers it will impact. It will not create a big impact because about 40 percent of your deposits are in current account/savings account (CASA). So it is only 60 percent. Also, you see how much of the deposit comes in this bracket.
Q: Would banks therefore cut single product loan rates? Like you only cut home loans or you only cut consumer durable loans ahead of Diwali it makes sense, should we expect that kind of a pattern from banks?
A: That can happen to some extent but banks have already announced this. The basic loans that are in demand today are housing loans which are absolutely at base rate by most of the banks. So there is no further scope of cutting them. In respect of the auto loans, we have already cut and announced it at 10.65-10.75 percent.
Q: Are you saying that deposit rate cut has followed the lending rate cut?
A: On a retail side, yes.
Q: We were speaking with Keki Mistry just a while back and he indicated that he expects to see about 15 percent credit growth once the credit offtake picks up. What is your indication of how much time it would take for credit growth to pick up and what could the eventual growth be?
A: We have a busy season coming in and so, in the second half of the year the credit growth should pick up especially the working capital limits, which are not drawn out are drawn up.
Also, on the basis of your other creditor investment, the credit growth cannot come in a big way. The SME credit and the agricultural credit are just keeping pace with the normal credit growth rate.
Last year our growth was not that good. So we are around 13 percent but 15 percent growth is possible.
Q: Is it too early to call this a beginning of a decline in the rate cycle?
A: Yes, if you have tracked governor’s statement yesterday, it is too early to say that we are out of the woods. Therefore, it is too early to say it is a beginning but since it has happened, you cannot just say not also. But what is the gap in the next moves to cut, we will have to wait and watch.
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