Federal Bank has reduced one year deposit rates to 8.75 percent with effect from December 4. State Bank of India has also cut interest rates of three retail term deposits below Rs 1 crore by 25 basis points with effect from December 8 after ICICI Bank and HDFC Bank - cut up to 0.50 percent in maturities of up to one year.
Speaking to CNBC-TV18, Shyam Srinivasan, MD and CEO, Federal Bank says Q3 margins are unlikely to reflect lower deposit rates.
According to Srinivasan, the credit off-take remains muted and so, the base rate cut is likely sometime in Q1 of next financial year. He expects the second half of the fiscal and the overall year to be better than the first half.
Going ahead, the commercial private sector lender expects net interest margins in the range of 3.2-3.3 percent for Q3.Below is verbatim transcript of the interview:
Q: Of late a lot of banks have gone ahead and cut deposit rates, at Federal Bank are you all looking to cut the deposit rates in any tenure or any bracket?
A: Yes, on December 3-4 our deposit rate cut became effective. We had a special bucket at one year and the below one-year rates have been adjusted. One year rate is at 8.75.
Q: How has been the credit off-take? Do you think this cut in deposit rates - could it signal a cut in base rates, when could we see the first of such cuts?
A: The credit off-take has been more or less along the same lines as it has been for the first six months for us. The retail and SME credit off-take has been reasonably okay though not at the levels that we have expected on the high 20s, more in the mid-teens. Corporate credit has been very sluggish and very episodic and I don’t see that correcting itself even for the quarter that was currently underway or till some more clarity emerges on some of the large policy outcomes.
Credit offtake being muted, the base rate cut is likely sometime in Q1 of next financial year and the recent cuts in the deposit rates positions us to be able to pass on the benefits for the borrowers but that should be in the early part of next year. Having said that, at Federal we cut our base rate quite substantially in July of this year.Therefore, we dropped 35 bps on our base rate to be more in line with some of the large public sector undertaking (PSUs) but the real big ticket cut may happen through next financial year beginning with sometime in February 2015.
Q: What will be the impact on your net interest margins (NIMs) in the Q3 quarter that is October to December on the back of this deposit rate cut that you have taken?
A: The deposit rate cut doesn’t translate to a margin gain in the near-term because all the applicable new rates are on the incremental flow. So it takes a while for it to readjust itself.
I don’t see the Q3 margin in any form reflecting the lower deposit rates, so it is going to be nearly Q4 that you will start seeing but by the time the base rate cut may come through.
Q: Do you maintain your guidance of 3.25 to 3.3 percent on the NIMs?
A: In that zone, yes. Last quarter it was a little flattered by one of the benefits but the underlying is in 3.23-3.24, we will be in that zone this quarter or so.
Q: This time around we saw some marginal worsening in your asset quality, absolute terms a bit but in terms of percentage you think going forward for the rest of FY15, they could stabilise? What is the level you see them stabilising at through the end of the fiscal year?
A: Just as a correction, I don’t think both our gross and net kept sequentially improving for almost 8 quarters even Q2 it was better than the previous. That said, we expect a similar performance in this quarter and beyond. We don’t have any significant stress in the retail and SME portfolio, corporate we have largely at - one or two still accounts remain a threat but everybody is working closely with these accounts.
We are part of a large syndication in that lending so we have to work with the others to sort that out but barring that we don’t have any significance stress on our corporate book.
Q: Slippages were close to Rs 174 crore post Q2, fresh restructuring was at Rs 68 crore, will Q3 numbers on slippages and restructuring look better than Q2?
A: Yes, that could be an expectation. We are also working on that. The slippage does look along those lines. Restructuring, I don’t have a comment yet, we will have to see how some of these accounts still play out.
Q: You had earlier told us that credit growth will be better in the second half of this fiscal year, is that on track? In H1 it was about 11 percent, will H2 credit growth be closer to 15 percent?
A: H2 I may be a little optimistic but I cannot be that optimistic about Q3 because retail and SMEs are doing along the same lines but corporate, for this quarter, tends to be been pretty low for everybody and we are no exception. So I cannot comment on this quarter but for the full year and therefore second half yes, we remain optimistic.
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