State Bank of Travancore has set the market abuzz by cutting base rates by 10 bps to 10.15 percent. In an interview to CNBC-TV18, VR Iyer, CMD of Bank of India, talks about the bank’s outlook on rate cuts.
Below is the transcript of VR Iyer’s interview with Ekta Batra & Anuj Singhal on CNBC-TV18.
Ekta: We have seen State Bank of Travancore setting the market a buzz by cutting base rates by 10 basis points to 10.15 percent. Is Bank of India (BOI) looking to cut base rates as well?
A: Reserve Bank of India (RBI) has indicated that lower interest rate regime is to follow now. There are two-three factors that actually influence the base rate cut. One is the liquidity in the system which is quite good. Second is the funding cost. What happens is when repo rate cut is done it does not impact the cost of funds for the banks because we are not borrowers in the market and we have very good retail franchise especially all the public sector banks.
Third is that it continues to be muted. What is actually influencing the current scenario is that the level of stressed assets continues to be high. As of now we are also not facing the peer’s banks pressure so I personally feel that the bankers would like to secure their spread for the current month. They would start looking at cutting the lending rate from April onwards.
Anuj: What would be the quantum of rates that bankers would be comfortable to cut in April?
A: RBI has cut down almost by 50 basis points from the month of January. Definitely bankers would not be in a position to pass on the same rate cut by way of transmission. We may be looking at a slightly lower level of cut in the lending rate going forward. As the stresses in the assets still continue and we would all like to see that the credit also picks up. At least there is some semblance of the investment climate becoming much better and the business may start investing so that we have going forward revenue growth we can see.
Ekta: So would a 25 basis points rate cut be likely in April? A: Between 10-25 basis point is one which one can expect. Anuj: Pink paper report suggests that Bank of India was looking to raise money via Qualified institutional placement (QIP) and that it was rejected by the government a- if you could confirm that and b- what will it do to your capital requirements? A: I do not know how this message got circulated that Bank of India has applied for QIP and it as not been considered favourably. Let me clarify that Bank of India has not applied for any QIP to the Department of Financial Services (DFS) ministry of finance. We were looking at different alternatives for raising the capital for the bank. As of now we have in mind to go in for the preferential allotment. We will take a call on that and the capital adequacy are at level required for Basel III as of now. Now that the credit demand is also not much there we are not looking at any rights issue or QIP for the time being. We have in mind to take it up with again with RBI on the monetisation of our real estate where we can garner almost about Rs 3,000 crore number one. Number two to augment the capital going forward as and when the economy also picks up and the business environment eases and is favourable. We are also looking at our subsidiary valuation we are on that job and one of the valuation of our subsdiary is about USD 250 million so we also have in mind that. Number three we are also looking at our unproductive asset sale off which we also may do going forward as and when we require it. Locally also the subsidiaries which we have the life insurance we certainly have in mind to dilute or stake from 48 percent to almost 30 percent so that is the dilution of almost 18 percent which we have in mind and which we will definitely look at. So the bank has adequate alternate source of raising capital and in the mean time the banks also has reorganised itself. Reorganizing itself towards the capital light operating models. I am sure that Bank of India would be in the position to satisfy the DFS on the changed criteria which they intend to apply. It is a very welcome measure that PSB should look at the performance back measures for its own growth and also for raising capital.
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