YES Bank and Kotak Mahindra Bank today cut their base rates by 25 basis points (bps) to 10.25 percent and 9.5 percent, respectively. The lower base rates will come into effect from October 5, 2015. Base rate is the minimum Both the banks have joined the lower rate bandwagon two days after Reserve Bank Governor, Raghuram Rajan, cut repo rates by 50 bps.
The country’s largest lender, State Bank of India (SBI), was among the first few major banks to reduce its base rate by 40 basis points (bps) to 9.3 percent, soon followed by Bank of Baroda, Punjab National Bank, Axis Bank, and UCO Bank.
Speaking to CNBC-TV18, Jaimin Bhatt of KMB, says the bank's cost of borrowing now stands close to 7.5 to 8 percent.
"We are making sure that we are passing the benefit of lower rates to users. Our entire corporate book and some parts of retail, is linked to base rates. So almost 60-70 percent of our accounts will be impacted by the lower base rate," he explains.
However, Bhatt is confident of maintaining margins at 4 percent.
Below is the transcript of Jaimin Bhatt’s interview with Latha Venkatesh and Ekta Batra.
Latha: This will immediately impact margins? Any impact that you can tell us for the next quarter?
A: Difficult to say right now in terms of the impact, but yes, we are transmitting, the deposit rates have lowered also and to that extent the base rate cut in effect is transmission of the policy directives which came around and we made sure that we pass on the benefit to the lenders also.
Latha: Are you already on marginal cost?
A: A large part of our base rate computation is on marginal cost.
Ekta: What is your cost of funds right now?
A: We would be close to 7.5-8 percent right now.
Latha: Even in terms of cost?
A: Overall.
Latha: What is the amount of your asset book that is linked to, that is on flexible rate that is linked to the base rate?
A: If you look at an overall number, our advances book is about Rs 105,000 crore thereabouts and a decent part is the entire corporate book is linked to base rate, and a decent part of the retail book, particularly related to home loans and all would be linked to the base rate.
Latha: So, should we take it as 60-70 percent?
A: Yes, close to that.
Ekta: Your last quarter margins were at around 4 percent cumulatively, for ING Vysya and Kotak, the new bank.
A: Yes, that is right, 4.2 percent.
Ekta: Do you think that you can maintain the 4 percent level at least?
A: At 4 percent levels, I do think we have not done the arithmetic, but my gut is that yes, at 4 percent, we should be able to maintain at these levels.
Ekta: What are you envisaging in terms of credit growth, corporate as well as retail? What is it looking like? We just got data that it has slowed down, it is still 8.6 percent.
A: Yes, but we talked about the fact that for the year as a whole we would be looking at a range of 15-20._PAGEBREAK_
Latha: Would you say that the worst in terms of gross non-performing loan (NPL) creation is over? Will additional slippages, incremental slippages for the September quarter be lower than the June quarter?
A: I do not want to get into the September quarter numbers. We will be announcing the results sometime during the month.
Latha: But directionally, will incremental slippages fall?
A: What we talked about at the end of the Q1 when we discussed the results was that we had acquired a book and we had said that there were areas of that book which were stressed and some of which we have recognised in June but there were others which we felt that we would have to take some hit on that book in the three quarters subsequently. So, some of that pain we will see in the second quarter.
Latha: What you have just passed on is cuts that happened so far. The September 29 cut is yet to be effected in the form of deposit rate cuts? Are you announcing a deposit rate cut now?
A: Deposit rate cuts have been, yes, we have also lowered deposits in a few places.
Latha: Approximately how much? Half a percent?
A: Less than that -maybe quarter of a percent or so.
Latha: We should expect that in a quarter, your base rate could go down further because the marginal cost would have fallen?
A: Let us see. I think we will reflect that as we go forward.
Ekta: You are joining us at a time when there is a new bank which is starting operations in the private space today as well. What is your sense in terms of the competitive intensity or the landscape that we see in the next couple of months with even the likes of payments, small banks coming in?
A: There is enough business around; there is enough both on the deposit side and the advances side. So, yes, we welcome all the banks which are joining us.
Latha: But are you happy that you started 10 years ago and not now?
A: That will always be the case. Yes, we started 10 years ago; there are advantages of being around. Of course there are advantages of coming in now with respect to the latest technology and what not.
Latha: What advantages? You already have the Yes and the Kotak and Kotak has really grown big in the last 10 years and then you have 21 other licences. Surely, starting bank now would be way more challenging than in 2005.
A: I agree, but then you look at the new banks, they are also in specific niche areas. You have payment banks and you have small banks, so they are not full-fledged. The full-fledged are going to be just two right now.
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