Bankers bet on normalcy returning in month, flag sectors in pain

With regards to old note deposits, the bank received about Rs 3 lakh crore out of which 70 percent was paid back into the sytem, he said.

Tiwari is of the view that confidence of getting cash whenever needed will return back for people in a month or so.  He said RBI is now in a better position to supply currency.

He also noted that cash that was withdrawn and held earlier out of fear of cash crunch has started coming back into the system.

The slowdown witnessed in the auto space is more due to buying decisions being postponed for a few months, said Tiwari.

Commenting on the asset quality report by RBI, he said the bank has seen recoveries same as prior quarters.

Venkatesh said their CASA grew by 35 percent post demonetisation but there has been lot of volatility in the deposits received because now withdrawals are also taking place.

Initially, demonetisation led to a lot of pain for customers in terms of cash-crunch, less change but now things seem to be easing a bit and long queues also seem to be receding, said Venkatesh.

He said the decision on cutting lending rates will be decided in the ALCO meet.Below is the verbatim transcript of Rajnish Kumar & Arun Tiwari's interview to Latha Venkatesh & Sonia Shenoy.

Latha: Your associate bank State Bank of Travancore (SBT) greeted the day even well before market opens, we got the press release; they are cutting lending rates by 25-30 bps. Should we expect the mother bank to follow suit?

Kumar: Asset Liability Committee (ALCO) may meet either this evening or tomorrow. However, ALCO will decide based on our usual analysis of the situation, cost of funding and other factors.

Latha: Are your numbers likely to be very different from SBT because 25 bps we haven't heard in a bit. Do you think there is scope for substantial rate cuts?

Kumar: It is very difficult for me to give any indication at this point of time, but 25 bps which SBT has done, may be taken as a good indicator.

Sonia: Your thoughts on the Reserve Bank of India's financial stability report that was released yesterday, which indicated that there could be a lot more stress in banks as a whole next year and they are even looking at more than 10 percent NPAs for the banking system as a whole in FY18. What is your sense? Do you think that the situation could worsen over the next three-six months for the industry?

Kumar: There is a temporary disruption particularly for SME segment or unorganised sector is what we call and some measures will be required, some relief will be required. So it comes in what shape and manner and from what source whether it is government or banks, so some corrective action will definitely be required.

However, as far as organised sector goes my understanding is that the impact of demonetisation on them is much less. The industries which have been affected are which were largely dependent on huge number of levers like construction industry or real estate, jewellery industry. These are some of the industries where the impact is more and these industries will require some relief.

Sonia: Within the organised industry, we are getting indications of a lot of stress in pockets in two-wheelers, truck sales, cement sales etc. Do you see a lot more non-performing assets (NPAs) rise from some of these sectors?

Kumar: The steel and textile sectors were in case under stress for some time. If they were to be revived and the time to revive maybe much more now, so maybe three-six months more otherwise it was expected that these sectors will be revived but maybe because of the impact of demonetisation, for three-six months the process maybe delayed and that is what I am saying that for three-six months some relief measures or forbearance will be required but the story in India about growth - temporary it might have been impacted, the consumption story and if we see in the Budget that the government is able to increase spending on infrastructure and on housing, for example then this will give boost to demand for, particularly steel, cement and other sectors.

In steel always the situation is very dicey because it is largely impacted by what is happening in a country like China which has 800 million tonne of capacity. How the price movement takes place there - that also impacts the steel industry globally but right now protection in the form of minimum import price (MIP) is available and steel industry's cash flows were showing size of improvement.

If government's infrastructure spends goes up, which is most likely and that will give demand push to these sectors but right now for next six months we will have to very watchful.

Latha: How much of old note did you all get?

Kumar: Approximately about Rs 3 lakh crore as far as SBI is concerned and out of it 70 percent has been paid back into the system by SBI._PAGEBREAK_Latha: The Reserve Bank of India (RBI) has given forbearance for under Rs 1 crore loans. You are saying that is not enough. The RBI should expand the forbearance? 

Kumar: Forbearance means banks do not classify the account as NPA but in this the issue is what happens after 90 days. Suppose there were instalments overdue for two months and three months here, so in this period bank will not classify this account as NPA, but we have to think that at the end of that period what happens and whether the borrower will have to pay all the overdue instalments otherwise the account will not be treated as standard. So we have to look beyond that period and find out that how are we going to adjust that situation, but otherwise our advise to the borrowers has been to that if they can pay, let them pay.Latha: When do you think withdrawal limits will be removed?

Tiwari: I do not find queues at the ATMs or outside the branches. However, I did a check at the rural branches also and my officers said that there are no queues outside ATMs or branches, money is available but not many people are coming for withdrawals.

As of date Reserve Bank of India (RBI) is in a better position to supply more currency, one. Second, now people know that cash is available as and when they want, so the propensity of withdrawing and hording has whined out. So quite likely that limit maybe increased.Latha: When will a depositor not be turned away?

Tiwari: I will put it this way - the day I get to know that as and when I go to bank I will be made available the currency, the amount of currency, it would be given to me.

As of today or in the past few weeks, what is happening is people were not very sure that when I come around next time whether currency will be made available to me. So the propensity of withdrawing more was there otherwise how much cash we carry, hardly any.

Sonia: Around when will that confidence come you think?

Tiwari: Maximum a month. It is more to do with the psyche of the people than the currency or cash they need. However, what has added further is people who were withdrawing cash earlier on, it was not getting back into the system but as of today if my ex-amount is being cash out everyday pan India for entire bank, let's take a hypothetical figure of Rs 1,000 crore, about Rs 500-600 crore new currency is coming back and is being deposited with the bank.

Sonia: Let's talk about the financial stability report that the RBI came out with yesterday. There is a baseline case of higher stress in March. What is your sense about your bank? Will stress rise especially because of demonetisation?

Tiwari: Because of demonetisation the sectors which have been impacted greatly would be hospitality or non banking financial companies (NBFCs) or maybe micro finance where cash propensity was more in their transactions or two-wheelers in the automobile because I was talking to some of my constituents about a few days back, they said that as much as trucks and buses are concerned, there is no change in demand or sales thereof but yes, two-wheeler segment, people have postponed their purchases, not that demand has vanished, maybe after a month or two. So I think in the times to come it should normalise in three months time.

Latha: We spoke to a lot of dealers and we got the sense that even trucks sales have taken some 20-30 percent knock and cement sales, we heard have deteriorated. So at your bank will there be asset quality deterioration in the second half?

Tiwari: When this all started we all were worried. I can vouch for my bank. I thought that hell will loose break in as much as the recoveries are concerned, more creation of NPAs but the numbers which I have, my recoveries have been at the same or little higher level and so also the creation of NPAs, the fresh creation of NPAs, they have not been to that extent.

However, if we compare last two quarters, it was more on account of larger accounts getting into the NPA and in that case whatever had to be NPA, they have already become NPA. So it is the smaller account which will be turning out to be NPAs and all these accounts are by and large, which are ancillary unit, micro, small and medium enterprise (MSME) sector.

Sonia: The next big event everyone is watching out for is the Budget. Some bankers have been seeking tax write-offs on provisions made for bad loans. What is your expectation?

Tiwari: As a blue passport holder the tax rate should come down and maybe it will come down and it has been hinted amply in the media that tax rates may go down and the larger picture would be the fiscal prudence which government has been walking on the path.

As much as the banks are concerned maybe little more towards capitalisation and little more above de-stressing of the bad assets. I think these things will have a place in next Budget.