Banking industry to see 13-14% credit growth: Axis Bank

Latha: There has been a lot of new on the banking space, a bunch of you have cut deposit rates. Tell us which are the buckets you have cut, are they major like one year deposit buckets which bring in a lot of money. Is it going to make a seminal difference to the cost of money?

A: As far as Axis is concerned, we have cut deposit rates and the deposit rate cuts have been sharper at a very short end, less than 90 days at the deposit rate cuts have been extremely sharp because that is money which we do not need right now even in the longer maturities deposit rates have been cut – that’s a function in terms of demand for money but also specifically as far as Axis is concerned we did the largest infra bond issue.

We raised Rs 5,700 crore of infra bond, the largest ever infra bond issuance till date – that happened last week and that was a huge success and that to some extent also to the need for long-term funds as far as we are concerned and also played a role in terms of reducing rates. So on the whole rates have been reduced from 25 up to 75 bps across tenures. If you look at the impact as far as cost of funds are concerned, the balance sheet is so large that these amounts ultimately will all ad up but these are still small amounts and so in terms of net interest margin (NIM) impact and whatever it should be marginal.

Latha: Rs 5,700 crore infra bond issue ultimately in terms of cash reserve ratio (CRR), statutory liquidity ratio (SLR) and priority sector lending (PSL) incentives will add just about 2-3 bps in terms of cost?

A: Yes, it’s more in that range.

Latha: But this is 25 to 75. In the long haul is not this going to make a seminal difference say by end of FY15 will not the reduction of deposit rates be an important addition to margins?

A: The whole thing is that deposits mature over a period of time. It is not probably six months, the entire deposit poll which is if you assume 12-13 months maturity in terms of average maturity across all types of deposits – that will reprise over the full year.

Latha: Let me put it this way – let’s forget margins because that will depend on the lending rates as well. If you only look at cost of money, over 12 month period how much would you have saved?

A: That is what I am saying – this 25 bps will flow over a period of 12 months.

Latha: How much will it be? Is it 1 percentage point fall in cost of fund, average cost?

A: It will be 25 bps because you are reprising deposits which were possibly 25-50 bps higher which you have accumulated.

Latha: There are also some 75 so is that you major bucket 25?

A: The whole thing is last year when you had the Fx prices – that situation was different, where you were borrowing at very high rates and the reprising was happening at much lower rates. So here if you look at the last – if I assume over the next one year what am I reprising. If I am looking at the previous six-nine months what was I borrowing at. It is possibly 20-50 bps higher. So that reprising is just 25-50 bps higher over 12 month period but the whole thing is not. The whole thing is, is this a trend and how much of this is going to continue and over the next three-six months it’s not what you are reprising today but is this reprising going to happen much sharply lower.

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Latha: Why don’t you answer that question but that would have been our next question?  If the Governor is as good as his word and there is a cut in the first quarter at some point even if it is April, what are you seeing?

A: I would think starting next financial year deposit rates could fall faster. The only reason I am saying that is as you approach the last quarter, credit growth has been slow this year. Q4 is high in terms of overall credit growth; the best part of it happens in Q4 and therefore demand for money in Q4 is higher than the previous three quarter and therefore banks typically would not be lowering deposit rate sharply in that quarter unless you have an event which causes tremendous amount of liquidity to come into the market or there is a sharp reduction in   rates from RBI. That we will have to see how it comes but we do not expect any sharp changes in rates.

Latha: So the reduction comes in the Q1 of FY16?

A: That’s when demand for money has become lower and therefore banks will be unable to cut deposit rates.

Ekta: What is your sense on credit growth because Axis has generally been above industry estimates? What are you tracking in terms of credit growth at this point and what are the trends that you are seeing?

A: The banking system has been lackluster as far as this year is concerned.

Ekta: What are you currently tracking and which are the sectors that you are getting more response from or you are comfortable lending to?

A: The system should be in the region of 13-14 percent for the year is our view. As far as Axis is concerned as you are saying we should be doing better than that and in terms of financing, I do not think there is any single sector in which investments are going through. If you are looking at what can change is primarily from a point of view of people who are able to access bond markets or money markets are doing that a lot more now than before because the differential in terms of cost of fund for them, these markets offer them more value and therefore you are seeing only refinancing of existing loans where corporate are seeing how they can refinance at lower rates and incremental working capital demand. Those are the ones which are driving credit growth.

If you look at what is going to happen right now yes, ECB to some extent because of credit spreads for Indian corporate has been much narrower now than before, you are seeing preference for ECB also increase and this is also causing slower rupee credit growth which is what we are experiencing.

Latha: The Governor was making the point in an interview to me that credit to industry has not fallen as much as rupee credit offtake from banks appears to give the impression. In the more seminal question and if you can give me more pointed answer. When will you cut lending rates? When will the system cut lending rates?

A: The answer is clear that as our cost of funds comes down, we will track that as far as base rate is concerned and we did that recently. We lower our base rate from 10.25 to 10.15 and as we see that playing out in cost of fund, we will continue to do that and let us hope that we are able to lower cost of funds even more and surely the transmission will happen. 

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