SBI cuts base rate by 40 bps to 9.3%, effective Oct 5

The country's largest state-run lender, State Bank of India, has cut its base rate by 40 basis points, or 0.4 percent, to 9.3 percent, effective October 5, Chairperson Arundhati Bhattacharya told CNBC-TV18.In an interview, Bhattacharya said that there could be further rate cuts in the future by banks, given that the RBI Governor Raghuram Rajan has indicated that the door for future rate cuts is open.This morning, the RBI slashed its benchmark repo rate by 50 basis points (0.5 percent) to 6.75 percent. This came after a total of 75 basis point cut earlier this year in three tranches as inflation pressures eased in the economy.SBI is also cutting its deposit rates by 25 basis points across maturities, effective next Monday, the bank chief said, adding that it would help bring down cost of funds for the lender.Below is the verbatim transcript of the interview.Sonia: Can you just confirm for us whether State Bank of India (SBI) has indeed cut the base rates and by how much?A: Yes, we have cut the base rate by 40 bps.Sonia: Currently it stands at 9.3 percent?A: Yes. From 9.7 it will go to 9.3 effective October 5.Sonia: And what would the impact of this base rate cut be on the margins?A: Margins for some period of time will be impacted by around 10-11 bps but again I would suggest we don't look at it quarter-on-quarter (QoQ) because as the deposit book rises some of it will obviously come back. So, I don't think we should look at a lasting impact on margin.Anuj: So, can we assume that going forward there will be more rate cuts in the system now that the Governor has also kept the door open for further accommodative stance in the policy?A: That is what is normally indicated when we say that it is an accommodative stance in the sense that the door is open for further cutting in, in case other parameters look to be conducive. So, yes going forward we do believe that there could be something.Sonia: What about from SBI itself because the governor said that the entire 125 basis points cut that we have seen so far should be transmitted  by the banks. So, far we have seen about 30 basis points and now another 40 basis points. From SBI itself can we expect further cuts in the base rates?A: I continue to say this time and again, that when the RBI raised rates 75 basis points we only raised it by 30 basis points. When the RBI brought it down by 75 basis points, we brought it down by 30 basis points. So, for us the transmission was complete. We never brought it up, so where was the question of bringing it down further. Having said that this time the RBI has cut by 50 basis point, we have transmitted 40 basis points. So, going forward as the book reprices properly and as we begin to see more of credit growth coming in, we will definitely keep looking at ways and means of bringing down the rates further given the fact that we do believe that further weakening of rates will definitely add to the growth of rate.Anuj: You said that you see a bit of a margin impact because of this. So, was there a bit of a nudge from the RBI to pass on the rates as soon as possible? Second will you now have to move on deposit rates as well and cut them as well going forward?A:  No, the fact of the matter is that even earlier when we cut rates we normally cut rates to the extent that we possibly could immediately after the rate cut by RBI. So, I don't think it is a question of any nudges from anybody but it is a question of how you want to ensure that your book grows well.Regarding the deposits, we will be cutting deposit rates as well, we will be cutting about  25 basis points across various maturities.Anuj: That will be with effect from today itself, should we see another press release to that effect?A: This is with effect from October 5 because we are very shortly into the end of the quarter and I don't want to change the quarter ending programme from the system by trying and inputting something new. So, we will start it from Monday, that is October 5.Sonia: The RBI has also reduced the risk weights applicable to low value home loans. How much of a positive sentiment do you think this could be both in terms of  demand and just the overall trajectory?A: We have to still see what that number will be like because they have really not come up with any number. They have merely said that they will look at the low value loans that are well collateralised in order to bring down the risk weightage. So, today with 50 percent  risk weight the capital cost is around 80-90 basis points. So, if that is brought down there will be a little bit of extra that we can do over there. It should definitely  add to the positive sentiment.Anuj:  Going forward what kind of cost of funds change do you see because you did say it will impact your margins by 10-11 basis points and I am assuming that you would have factored in margins going back to normal at some point. So, what is the time horizon that we are looking at for your cost of funds to be at par with the kind of net interest margins that you were enjoying?A: Cost of funds at this point of time, we are seeing because now the book is depricing a little faster as we had started sometime in September. So, on a monthly basis the fall is quite good but on accumulative basis it is still quite minimal. Also the fact that there is more of retail deposits now than saving, the mix itself has become more term deposit because people realise that they need to lock-in their funds as the rates are on a falling cycle. So, all of that has got to work in, immediately it is very difficult for me to exactly tell you by what time it should come back but it is not possibly right to look at this only on a quarterly basis. The emphasis will be to try and ensure that at least the NII remains where it is.Sonia: You said 80-90 bps fall in home loan. Is that correct?A: No, what I am saying is currently that is the capital cost. Depending upon how the risk weightage comes down that number will come down.Sonia: And what percent of SBI's book comes from the smaller category home loans?A: We have quite a large number. Exactly the percent I don't think I will be able to tell you right now but the very small amounts should be in the range of 20-25 percent but if you look at our overall book, our overall book is mainly in the small to medium home loan zone. So, to that extent it should have a good impact on our book but we have to see what is the risk weight that we will finally determine.Sonia: Because the sentiment has improved quite a bit post this 50 bps rate cut I wanted to ask you how much do you think this could enhance credit growth for the system as a whole?A: The system as a whole basically one thing we have to remember that the WPI being in the negative territory very clearly indicates that the raw material cost for all of our industry has come down. Therefore the improvement of credit demand on the working capital cycle will still be muted. People are able to manage with better amount of money. The increase in credit will necessarily have to come from projects. So, therefore as soon as the projects are all on the ground and moving you will find credit growth will pick up quite nicely.The retail side of course even today the growth is pretty good and that should be maintained and it should be enhanced further given the good sentiments that are coming in plus the fact that the festival season is round the corner.