Chances of sub-15% credit growth by FY15-end slim: HDFC

Latha: We got early morning news from State Bank of India (SBI) that they have dropped their big bucket of deposit their one-three year deposit rates by a quarter percentage point, is this the first sign that rates are headed lower?

A: Inflation numbers clearly have come down. So with inflation numbers coming down and the credit off take probably not being as quick as or as fast as expected, they have cut down deposit rates. So yes, I think the expectation would be fair that over the next month or two we could see a few more rate cuts in the system on deposits. However, it’s too premature to say that this a long-term thing because my sense is that as the sentiments in India had got so much better in the last four or five months, it is only going to be a matter of time may be a quarter or two quarters before we see credit off take begin. When credit off take picks up, maybe some of these banks may again need to look at revising the rates upwards a little bit.

Latha: As a veteran money man how would a banker think? As soon as they cut rates, they usually pass it as lower loan rates as well, lending rates as well?

A: Not necessarily because again when you cut the rate it is only incremental deposits which come in at that lower rate. The existing loan rates don’t get revised downwards till the cycle plays out. So it may not translate into an immediate cut in anyway but over a period of time, if these rates were to prevail and the credit offtake was not to be very sharp then yes, it would translate into cuts in lending rates also.

Sonia: Over a period of time, how much do you think credit growth could pick up to? A banker was telling us earlier that credit growth is extremely sluggish about not even 10-13 percent. How much do you think it could pick up to?

A: I would be surprised if credit growth is lower than 15-16 percent for this year and my sense would be that real offtake in credit tends to pick up in Q4 of the financial year, which is January to March. Historically, if you take the last ten years, most of these ten years will find credit offtake in rupee terms is highest in Q4.

I would think that you will see a similar kind of thing emerging this year. So I would say, the reduction in interest rates on the lending side, one may have to wait a little bit till we get a more clear sense on how much further liquidity RBI is going to inject if any and how the credit offtake pays off in the system.

Latha: Once banks start their rate cutting cycle, do you think they are in a better place than finance companies, which depend on wholesale deposits because wholesale market money is not moving down so much, so do they steal a march over you when this cycle starts?

A: We have also deposits - many of the finance companies also have deposits.

Latha: You will drop the rates there?

A: Obviously, if the deposit rates overall in the banking system are lower, of course we will lower our deposit rates. May not be right away.

Latha: Should we hear from you before the month is out?

A: I don’t know about the month in particular. This is something which we review on a regular basis. So once we feel that there is enough room and that money will be available even at slightly lower rates, we can look at that. I cannot give you a time limit for that.

Sonia: What is the situation on the ground as far as liquidity is concerned? Has liquidity improved considerably such that the banks don’t want to pay higher deposit rates?

A: I would say that banks are sitting on surplus cash because credit offtake is lower, then what is the point of paying higher rates and deposits and continuing to sit on more surplus cash. That is perhaps the reason why the deposit rate cut has been in place. But if credit offtake picks up, which also can happen in the January to March quarter then banks will have to look at the liquidity position and see whether they can continue to get liquidity at those low rates that we are offering in deposits.