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Last Updated : Feb 06, 2017 09:42 PM IST | Source: CNBC-TV18

ICICI chief Kochhar says banks have cut rates faster than RBI

Even as banks have been accused of being behind the curve when it comes to cutting interest rates, ICICI Bank MD and CEO Chanda Kochhar says in the current financial year, they have been more proactive than the central bank itself.

Even as banks have often been accused of being behind the curve when it comes to cutting interest rates, ICICI Bank MD and CEO Chanda Kochhar says in the current financial year, they have been more proactive than the central bank itself.

"Banks have already cut lending rates by about 100 basis points while the central bank has cut rates by 50 basis points," she told CNBC-TV18 in an interview.

The Reserve Bank will be meeting next week for its bi-monthly meet. 

Speaking about ICICI's numbers, Kochhar said the bank's current-account-savings-account (CASA) ratio has risen to a healthy 49 percent -- some of it likely due to deposits in the wake of demonetisation. "Some part of the increase in this is expected to stay in the formal sector."

Speaking from the sidelines of ICICI Securities APAC Conference, Kochhar said that 2-3 large non-performing assets (NPAs) cases could see resolution soon.

Below is the transcript of Chanda Kochhar’s interview to Latha Venkatesh on CNBC-TV18.

Q: Green, that is the colour of the markets today as they cheer both the Budget as well as the impending monetary policy. On that note, what is the monetary policy looking like to you? Should we expect a cut? What are you going with?

A: If I talk about the monetary policy, you see that inflation maybe by end of this year will actually probably undershoot the target. The Budget comes up with a lot of fiscal discipline. There is some positive movement happening around the floors to the emerging markets again.

So, those are some positives, but at the same time, there are concerns about what would happen to inflation the next year given commodity prices and the pay commission and so on.

But I actually want to turn the question the other way to say, let us look at the lending rates because that is what you always ask whenever there is a monetary policy. What will happen to my EMI rates? So, if I talk about that, this time around, the banks have actually preceded, in that sense, the monetary policy cuts. If you see from April to now, the monetary policy cut has been about 50 basis points whereas the Marginal Cost of funds based Lending Rates (MCLR) of the banks have come down by about 100 basis points.

So, given the fact that we always used to say that it is not just the monetary policy, it is the overall cost of deposits that determines the bank’s lending rates. The banks have proven this that as the cost of funds went down, even though the monetary policy went down 50 basis points, even though the retail deposit rates went down 50-60 basis points or so, the MCLRs have gone down 100 basis points because we got current and savings accounts (CASA) which is indeed a lower cost of funds.

Q: That was going to be my next question that if the governor were to cut, what would bankers like you do. But let me ask you the follow up. Therefore would you say that the governor should not waste his cut and he may choose not to waste the cut and probably give cuts in April or so? Is that the baseline expectation that you are going with?

A: I do not know. I would really never second guess a regulator. As I said, there are a lot of points that are actually moving quite positively and the inflation, the reinforcement of the fiscal prudence of the Budget and so on. But whether RBI looks at it as this year’s inflation, next year’s inflation, but I would say that currently, for the customers, it is the lending rate that is important and the lending rate has already come down.

Q: What is your sense about the large increase in savings that you yourself reported, 44 percent is your CASA now? How much of the newly acquired savings will stay, you think, 10 percent, 30 percent, 50 percent?

A: Our CASA ratio is actually now almost close to 49 percent. So yes, a very robust increase in the CASA ratio. Some part of this increase will definitely stay in the formal sector because this is just dormant savings of people that have come into the formal sector and that is very good for the economy.

Some part of it will go back into circulation which is what it should be because that is what creates the multiplier impact on the economy. So, very difficult to assign a percentage currently. We will have to watch this quarter, but definitely the increase in the CASA base will happen and will be meaningful. I think it is going to be too early to assign any specific percentages here. But the other thing I would say is as the formal savings go up, in fact, it will mean an increase for the entire financial services business, not just deposits, insurance, asset management and so on.

Q: More quickly on the follow through of the Budget. There has been a discussion of the bad bank or what they called a public sector Asset Reconstruction Companies (ARC) in the economic survey. We are lately getting feelers from the government that they may not hurry with it and they want the RBI’s tools to be followed through. What is your sense? Nevertheless, will Public Sector Asset Rehabilitation Agency (PARA) or a public sector ARC or a bad bank in some form help?

A: My belief always has been that the focus should be resolution and that is very important. Then, whether it happens within the bank balance sheets or whether it happens in a separate entity outside the bank balance sheets, that is not material. What is material is will the entire eco-system move towards resolution and that is what we should focus on.

If we focus on resolution, even from the bank balance sheets, we can resolve these issues. If we do not allow resolution to happen then even if we park them somewhere else, I do not think that is really creating the productive use out of the asset. So, my focus always has been that yes, recognition of non-performing assets (NPA) is one issue. Recognition has been happening. We should all focus on resolution.

For focus on resolution, we have to of course, use the RBI tools to the extent possible, but also we have got to get the entire banking system to move quickly towards decision making, we have to have the judicial system move in tandem and so on. So, resolution is very important. To me, the rest of it is really form.

Q: So, you do not want another form, you are saying? The forms that you have are good enough?

A: I am saying that the form really does not matter because it does not change. The productive use of the asset, so it has to be more resolution. But if this form can expedite decision making and resolution in some way then it would be useful.

So, if one can say that all the bank credit to a particular case therefore moves under one umbrella and therefore, it is easier and faster to resolve, then maybe it is useful. But we should first figure what will be our method of resolution, our approach towards resolution. Only then we should decide on the form.

Q: I am not able to make out. You think then a structure like this is welcome, public sector ARC?

A: Provided we back it up with focus on resolution, that is what I am saying because otherwise, if you see the current ARCs, I do not think the debt aggregation has happened, I do not think too much of resolution has happened. So I am saying if we back it up with a focus on resolution, then yes, otherwise the form itself is not going to help.

Q: So, what is your sense? Is resolution happening? Should we hear of some happy cases from you in particular or from the bankers in general?

A: The 2-3 large cases that we have been talking about, those should very soon come to kind of conclusion. Some of the large sales that we spoke about, of the cement company, of some other company, they are all moving well as far as the regulatory approvals are concerned. So, we are quite hopeful that one by one, those deals should get concluded.

As far as the rest of the cases are concerned, the banks are really meeting frequently, meeting together, trying to resolve, but it does take time for these decisions to happen, it does take time for either to find buyers or to get the promoters to bring in more equity. So, I do not think we can really predict which quarter, what resolution will take place. We will just have to keep working hard towards it.

Q: I am tempted to ask this. Your own stock has gone up like a rocket from late last month. All of February, the stock has shot up from Rs 265 levels to Rs 290 levels. Something like a 15 percent rally in your stock in the last 3-4 days. And today, Jaypee Infratech stock is up 15 percent. The market is very much looking for a resolution on that counter. Should we expect one?

A: I generally would not want to talk company specific, but just on this, there is one deal which is already public knowledge, so that one can talk about which is the sale of Jaypee Cement assets to UltraTech Cement. So, that deal is moving. It is going through a regulatory approvals. But beyond that, I will not talk any company specific.

Q: But, can we expect any resolutions in steel?

A: The banks are working towards it, but you have to remember that in every resolution, we must follow due process. We must look at all the options that are available to us and then decide.

So, as we look at each and every option, as we look at the various options, I would say that it is taking a little bit of time for all of us to sit together and arrive at decisions in each of these cases. But the good point I would say here is that the steel companies are making earnings before interest, taxes, depreciation and amortisation (EBITDA), the steel companies are servicing part of the interest towards the loans. So, there is definitely an upward movement.

Q: Even in tough times, the private sector banks have gone ahead and done a lot of mergers and acquisitions (M&A). We already know about that Kotak deal that is over year old. We have very strong cues from IndusInd Bank coming. You have been in the forefront in M&A, should we hear from you?

A: M&A always depends on the strategic requirements of each entity at that point in time, given the requirement for scale, the opportunity that you get. I always say that we are always open to it, but at the same time, I must say that there is nothing that we are looking at as of now.

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First Published on Feb 6, 2017 03:27 pm
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