Loan growth in single-digits so far; see pick-up now: SBI

“By creating sops on the demand side, a lot of incentives need to be given on the supply side too. Unless supply improves it won’t percolate into the system.”

The government will have to do something to improve the supply situation.

Jairam Sridharan, CFO, Axis Bank said it is a good scheme.Below is the verbatim transcript of Anshula Kant, Jairam Sridharan and Sudhin Choksey's interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.Latha: What does this mean for SBI itself, are you overextending yourself in the sense that this might mean a margin pressure?Kant: If you look at our year-to-date deposit growth, talking from April 1, they have grown by about Rs 2,75,000 crore. Out of that about Rs 1,65 has come post-demonetisation. Even prior to demonetisation, we had grown more than Rs 100,000 crore in deposits whereas loan growth has been very tepid.About Rs 40,000 crore for us has moved out of the loan book and even in to the bond book. So the writing is pretty much on the wall that with disintermediation, the better quality credit has been moving to the bond market. Demand is tepid and whatever deposits you get, unless there is a credit offtake, you are deploying in the bond market or in the G-secs where the returns are lower than what you get on the credit book. So, I think it was with the mind to kick-start the demand, it was with the mind to improve our margins eventually that we have taken this step.Sonia: What kind of reasonable loan growth do you see across segments?Kant: We have to wait and watch. Right now, our credit growth is, year-on-year, in single digit and it has come down from September. We were growing at about 8.5-9 percent till September, now it is lower than that. So we do expect at least people who were sitting on the fence in terms of taking decisions on buying homes would certainly -- this would be the tipping point to take up those purchases. So we do expect an upward -- today if you see the deployment is happening in the investment book at about 6-6.5 percent and if some portion of it moves on to 8.6 percent or whatever, I think it will surely help eventually in our margins.Latha: What is the arithmetic? If your three-year MCLR is 8.15, I assume you will have a spread for home loan. So should we work with 8.5 as the base or 8.6 as the base?Kant: 8.6 because we are typically linking most of our loans to one year MCLR to give some stability to our interest rate earnings. So 8.6 is what we should typically look at for home loan when our one year MCLR is at 8 percent. There will be a spread over that.Latha: I also wanted to ask you whether these are likely to be more secure since there is a 3-4 percent subvention from the government, are these likely to be therefore ultra-safe because the burden on the borrower is very less as well you are getting this credit guarantee now extended from one crore to loans up to 2 crore. So in a sense does it make the loan book more secure?Kant: It surely would. Only thing is that the home loan -- as I heard the Prime Minister (PM) speak -- was on the low end of the ticket size.I think up to 9 lakh and 12 lakhs is where you get a4 percent and 3 percent subvention. For loans of higher ticket size, I don’t think a subvention was announced. Our average ticket size is about 30 lakhs for the home loans.But for the lower end, surely it will become more secure because the interest burden of the customer will be that much less.The credit guarantee scheme that you were mentioning, that is run by Small Industries Development Bank of india (SIDBI). So far it is up to 1 crore now it will be up to 2 crore. If I remember correctly, about 65 percent is what SIDBI guarantees you back. So surely, it will become less stress on our books eventually in terms NPAs.Latha: It is available for historical loans?Kant: I don’t know, I have to find out.Anuj: Just a word more on margins, if you could explain that to us and give us some picture because one concern is that could this be margin dilutive, if you could give some numbers to us?Kant: If you look at the incremental deposit that we have got since demonetisation, it is net-net about Rs 1,65,000 crore. Blended cost of that incremental deposit is about 3.75 percent for us because much of it has come in saving bank current account, very little in fixed deposits. It is proving to be a little more stable than we had thought earlier. Right now, we are not seeing outflows. So what we are earning on net is about 6-6.1 or so because we put it out in cash management bills and some commercial paper etc.So as it is there is a dilution there, while our net interest income (NII) goes up significantly but net interest margin (NIM) comes down because the spread is lower than 3 percent. So, if some of this moves out in to higher growth in home loans or MSME loans, I think it will help in the margins._PAGEBREAK_Sonia: Can you start by telling us what the impact of these statements would be on your industry and your company per se?Choksey: The announcement would certainly be very positive. The demand side incentives, which are being given in terms of the interest subsidy would be significant financial reliefs to the families in this particular segment of loans of Rs 9 lakhs and 12 lakhs.Latha: First of all is it applicable to you all or is it only for home loans given by banks that is my first doubt and secondly SBI has come with a killer rate cut, won’t that squeeze your margins?Choksey: We will have to certainly look at the announcement in the detail. Let the National Housing Bank or Reserve Bank of India (RBI) come out with a circular. However, the way I go by what I heard and what I read in the paper, it is going to be probably an extension of the earlier scheme which Pradhan Mantri Awas Yojana (PMAY) they had announced of 6.5 percent interest subsidy on a loan up to Rs 6 lakhs. So, it appears now they are extending up to Rs 9 lahks with a 4 percent discount and up to Rs 12 lahks with a 3 percent discount.In the previous scheme or the existing scheme of 6.5 percent, we have done pretty good disbursals and our customers have benefited. If you look at it, these are all incentives been given on demand side and it doesn’t translate into a very large number. If you look at the statistic of the government or the National Housing Bank from January when the government started disbursing the subsidy until October around 13,500 families got the benefit of a 6.5 percent.In terms of the subsidy amount it is only Rs 250 crore. The point I am trying to make is that unless and until the supply situation improves in these segment these are all the benefits, which will remain probably only on a paper or a very small portion of the population.Latha: I did a search on 99acres, Indiaproperty.com, there were so many houses available for Rs 13 lakhs and Rs 14 lakhs. They seem like ready-to-sell flats?Choksey: Let us see how much it translates but if you go by what happened during the last nine months, from January to October, these are the figures, which have been shared by the authorities with us. Therefore, I personally believe that while giving sops on the demand side, a lot of incentive needs to be given on a supply side. Unless and until the supply improves, this benefit will not translate or percolate down to a large segment of the population.Sonia: After the big rate cut that came in or the lending cut that came in from SBI do you see that translate into cuts from the rest of the banking system as well and will Axis Bank look at lending rate cut soon?Sridharan: As far as rate cuts are concerned in the new regime of MCLR rates are somewhat mathematically calculated using what the cost of funds is. As you are well aware the deposit it pays in the country has increased pretty tremendously since November 8th and that has resulted in a place where the banks are seeing cost of funds come down significantly which is what translates into the rate cuts. You saw SBI do that yesterday. All banks as they go through their rate review cycle which is supposed to happen every month will likely see something similar happen in their formulae as well.One important thing to remember though is that because this MCLR regime is somewhat formulae, the rate movement is not a one-way street meaning if a large amount of deposit comes in and because of that cost of funds come down and rates falls precipitously, if all the deposits goes out, it will also rise immediately even if something happens on the policy rate front.Latha: Therefore what are you going to announce. Just an invitation price home loan and watch up till March 31 and then take a call. That is what the banking sector did in previous times. So will it be short-term kind of home loan offer?Sridharan: For home loan origination, people will see different kinds of schemes come out and the kind that you are talking about is certainly a possibility because you don't want to be very volatile in new loan. However, for existing customers, the moment you cut your MCLR rate, the rate falls immediately and if you raise MCLR, the rate rise up immediately. So for existing customers the rate movement, if its MCLR based loan, it will be somewhat volatile and move along with how the banks cut their rates, almost proportionately.Sonia: For Axis Bank itself, how much have the deposits increased over the last one month or so and what has it done to your own cost of funds?Sridharan: First, we have entered a quiet period before our results, so will not be able to share exact numbers.Our monthly rate cycle, in which we declare MCLR and we do cost of funds calculation, is on the 16th of the month. So we declared our MCLR on December 16 and at that time our MCLR worked out at 8.85 percent, the six months MCLR which is where SBI wasn't were till yesterday. So essentially that\\'s what the numbers were on December 16; we will recalculate on January 16 and that's when we will be announcing our new MCLR rates.Latha: What is your sense therefore that the real estate sector is not in any position to give you homes because of its other problems?Choksey: Yes, government will have to do something to improve the supply side situation and now with Real Estate Regulatory Authority (RERA) coming and the kind of pain which we have been doing through in the last four years, it is not going to translate into a great demand side situation in the near future.Latha: What is your best guess of loan growth in your company in the second half?

Choksey: The Q3 has not looked very encouraging, so we are looking forward to the next financial year or probably next October or November, we will see the demand translating on optimistic side.Sonia: So till then the construction loans, residential property loans, all of those will still be in low single digits as it has been?Choksey: It looks like.Latha: Any idea whether you are eligible for credit guarantee being available now for Rs 2 crore small and medium enterprises (SMEs) loans instead of Rs 1 crore. Does that mean your historical book is also applicable for this credit guarantee?Sridharan: I do not think the historical book is applicable. We need to wait for the circular to come out to see how this works. However, my guess would be that we will need to register a loan at the point of originating them. So we are eligible for the credit guarantee and that's the way it would work and so one has to look at it on a cost structure basis, so that's the way we would like to look at it on prospective basis. There is enough unmatched demand of credit in that segment. So that is a useful scheme.