SBI cuts deposit rates for 1-3 yrs to 8.75% from 9%

Sonia: What was the reason for this revision and what would the impact be of this revision on the margins?

A: The reason for the revision is the fact that we have a lot of liquidity, we have not seen that kind of credit demand and therefore this is basically adjusting our asset liability management (ALM). The small increase we have seen in six months to 210 days, is also to address ALM mismatch but on one to three year we have a lot of liquidity there and therefore we thought it right that we needed to cut the rates at that end also given the fact that the inflation trajectory seems to be in the right direction, we will still be giving a real rate of return to our investors, to our depositors.

Latha: You have hiked one portion which is six to seven months but you have cut the one to three year?

A: That’s right.

Latha: I would assume that a lot more money comes in the one to three year than in the six to seven months?

A: Absolutely.

Latha: Can you give us an idea, what might be the six to seven month, what proportion, is it 5 percent?

A: That would be very small. Actually, most of the deposits are in one to three year bucket.

Latha: That means you are actually comfortable now that depositors will stay Put even if you cut interest rates by 25 bps. You think that inflation is sufficiently on a downward path that you won’t scare away depositors?A: I feel that’s the case because yesterday the Wholesale Price Index (WPI) was at a five year low, 57 month low, core consumer price index (CPI) is also at 32 month low, so hopefully going forward we will see this trending downwards.Latha: Are you the leader in the pack; are you the first one to bring rates below 9 percent?A: I think so.Sonia: What would the impact be because of this on the margins?A: It depends upon what is the inflow because this will only impact those who are coming in now – that is it is something that affects prospectively but if the inflow remains at the same rate then over a period of one year it would impact to the extent of around Rs 700 crore-800 crore.

Latha: Are you going to immediately drop lending rates on any product?A: Not immediately but we will keep reviewing to see what we can do.Latha: Will it be product wise or will it be the base rate?A: It is very difficult to say at this point of time.Latha: Is this the first of some more such cuts that we will see, is the trend firmly set on ensuring that money will be cheaper?A: It is difficult to say right now because the rest of the market is still at 9 percent. It will depend upon what will be the inflow in our deposits. If that goes down drastically then we might have to relook at it. This is basically a management of what is the amount available to me for lending. Therefore, to that extent we have to see how it goes. It is difficult to predict all of these things at this moment. Sonia: Since you did say that credit growth is slacking not just for SBI but perhaps for the whole industry as well. What would the impact of this be on credit growth?A: Impact on credit growth at this point of time is difficult to call. At this point of time we find that the credit growth is very low, demand is very low. We are hoping that things will turnaround post January, so we have to see how it is.