See CAR improving to 11.1%; base rate cut in Q1FY16: SBI

With the forthcoming over Rs 2900-crore preferential issue to government as part of its capital infusion plan this fiscal, the capital adequacy ratio (CAR) of the bank will go up from 10.66% to 11.1 percent is the word coming in from VG Kannan, MD, State Bank of India.

SBI on Saturday fixed Rs 295.59 per share as price for its forthcoming over Rs 2900-crore preferential issue to government as part of its capital infusion plan this fiscal. Last month, the government had announced to infuse Rs 2,970 crore into India's biggest bank under its Rs 11,200- crore capital infusion plan for nine large public lenders.According to him, the ratio of allotment to the government will be as per Sebi formula. Answering a query on the expected qualified institutional placement (QIP), Kannan said the bank had an enabling resolution to raise Rs 15,000 crore but the timeline and exact amount was not yet decided. He also denied the news report of the bank rejecting USD 1 billion loan to Adani Enterprises and said the matter was still in process and decision was still pending.When asked if the bank would look to cut base rates further, Kannan said in case the cost of funds were to go down then the bank would surely  pass it on. There was likelihood of a rate cut in first quarter of FY16.

Below is the transcript of VG Kannan’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: Just tell us the math; you have announced the price at which you will issue preference shares to your big shareholder. So how many shares will you be issuing to the government, what does that do to your capital? A: The capital of Rs 2970 crore has been allotted to State Bank of India (SBI). On the basis of the Securities and Exchange Board of India (Sebi) formula it has been allotted to the government. Exact number of shares you will have to get it from the concerned department. However, the ratio etc is as per the Sebi formula. Sonia: What does this do to your capital adequacy ratio? A: It will substantially improve. The exact figures we will come to know only in March but straight away I can tell you that it will go above the 10.66 percent which we are to more than 11-11.1 percent. Let us see how the figures pan out in March. I think we should be quite comfortable.Latha: You were also looking at a qualified institutional placement (QIP), can you update us on when that might happen, how much exactly are you looking to raise in terms of capital in 2015 calendar or FY16, financial year?A: We have got enabling provision to raise Rs 15000 crore. Everything has been cleared, the approval from the government, Reserve Bank of India (RBI) and also that from the shareholders has come. So, we are just watching the market and we have not yet taken a call on this. We should be taking a call, it is not decided as to whether we will do it - in this financial year or next financial year but it won’t be too long. We will take a call maybe within a short time. Latha: But road shows have begun we were told by the market.A: They are not road shows. What we have done is we go meet the investors almost after every quarterly result. The meetings are arranged with a lot of investors across both India and overseas. Latha: You got an enabling for Rs 15000 crore, do you go the whole hog? A: Let us take a call on this; let us not come to any numbers right now.Sonia: There is some newsflow that these power discoms are asking for rate hikes to the tune of about 8 percent or so but there is an expectation it could be 3-8 percent odd. What is your own estimate of whether there could be more on the anvil in terms of rate hikes and is this too little in terms of a quantum? A: I think the rate hike they are demanding appears to be slightly on the lower side. However, at the same time any hike is always welcome because many of the discoms are having problems on repayment and it has a downstream effect on the producers also. Whatever maybe the scenario depending on the collections, etc the rate hike is welcome.The rate hike could be slightly higher because many of the discoms did not hike the rates in the past except for a couple of them. I think we have to wait and watch. This is a political decision which is going to affect the masses and it is not going to be easy game for all of them.Latha: What are the big discoms that you are exposed to? A: We have major exposure to two discoms, one in deep down South and one in Uttar Pradesh (UP). Otherwise we don’t have any major exposures in other states.Latha: The understanding when the central government sponsored or rather convened a financial bailout package was that there would be regular tariff hikes. We saw one in 2013, we saw none in 2014 so have any of the banks or have for that matter you been able to stop onward lending because they didn’t keep their side of the agreement? A: I don’t think that kind of scenario has actually come in. We have always been in discussion with the discoms, they also have played their position. This is a welcome step that they are taking about asking for a hike and how much they will be in a position to get it through depends on how much there is urgency. However, overall the sentiment is good that they will be in a position to get a hike and the government may also not be too averse to increasing it. This will certainly add some comfort to the bankers that the position of the discoms will be more comfortable. Latha: What about base rate, State Bank of Travancore (SBT) has already lowered their base rates by a few percentage points, by 10 basis points or something but you guys call the tune, you set the market and the Governor seemed to indicate in the monetary policy statement that RBI can’t be the only guy cutting rates, they will look for transmission if you want them to act further. You are also ahead of a slack season that starts usually in April so should we expect some move from you?A: Last time I had mentioned that he rate cuts by the RBI is followed by cut by the banks provided they have the room to do the cut. If you see, the yields have not come off even after rate cut in fact it has come back to 7.78. With the Fed rate hike looming or possibility of hike coming up in three to six months depending on the timeframe there will be a scenario as to how do we take it forward. However, having said this in case our cost of funds comes down, there is no reason why we will not be in a position to pass it on. As regards to cost of funds, although repo cut takes place the benefit of it does not come to the bank. The total amount which is borrowed from the RBI is so small that it hardly makes a ripple even if they cut by 25 basis points.Latha: My point is when rate cuts happen your deposit costs are still very high and it takes a while for your average cost to come down, I take that argument but I think deposits have started falling from September-October thereabouts, many banks started cutting at that time. My simple question is when a cut if any? A: I think you might see something in the first half or maybe in the first quarter of FY2016; should be a strong possibility, starting April 1 to June 30. Sonia: Just talking a little bit about the loans that you have given, there is some report doing the rounds that the USD 1 billion loan for the Adani Group has been rejected by SBI, is that true? A: No, that is not true. No decision has been taken either to reject or to sanction it. It was only a memorandum of understanding, the papers are still under process and the call will be taken at the appropriate time after going through the papers.