See pick up in credit growth by quarter-end: HDFC Bank

In an interview to CNBC-TV18 Ashish Parthasarthy, Head Treasurer of HDFC Bank said he was not sure if the deposit rate cut taken by the bank would transfer into a base rate cut immediately.

According to him the trigger for the rate cut could have been due to two reasons. One, even though deposits had seen a growth there was no credit growth seen. Also the corporate deposits (CDs) and commercial papers (CPs) had come off significantly. Two, the bank needed to align themselves to the rate cuts taken by other banks.However, credit growth is likely to pick up by the end of this quarter, he said.HDFC Bank cut interest rates on retail term deposits between 25- 50 basis points. It has cut rates on 48-day to 1 year deposits.

Below is the transcript of Ashish Parthasarthy’s interview to CNBC-TV18’s Latha Venkatesh and Sonia ShenoyLatha: What was the trigger for this cut and how much does it reduce your cost, what are the buckets in which you have cut deposit rates?A: The trigger is very clear, we have seen banking deposits grow at a healthy pace, credit growth has not kept pace and the money market rate especially on short-term papers like corporate deposits (CDs) and commercial papers (CPs) have come off significantly. So one this is reaction to what is happening in the market. The second is a reaction to where our rates were vis-à-vis all the competitors; we have seen several rounds of rate cuts by other banks earlier so we are just getting that into alignment. So that is the logic behind cutting some of the rates. The rates have been cut up to the one year bucket - almost all the buckets upto one year except for a few at the extreme short end.

Latha: Do bulk of your deposits come under one year?A: No, it is spread out; some deposits come over one year. Latha: So what would be the break?A: I don’t have that number on hand because wholesale deposits tend to come in the shorter end bucket but the consumer deposit tends to come in the one year plus band. Latha: But you have cut for all of them or only for retail?A: This announcement is for retail, there would have been some alignment of the wholesale deposit rates also along in the same bucket.Latha: I want to know how much your cost of money will fall?A: That will have to figure out over a period of time - the cut is now, the cost of money will take time when the earlier deposits mature and the new deposits start coming in. It takes time; it doesn’t change so drastically immediately. It takes at least a few months, at least a quarter to have a meaningful reflection in the average cost of deposits of the term deposit book.Sonia: Will this spur a cut in lending rates as well eventually?A: There are two aspects of lending rates; there are money market instruments which already reflect cut in rates. The other is obviously the base rate. The base rate is a formula driven thing and whenever it is reviewed from the formula basis if it indicates a cut then obviously there will be a cut. So there is not too much of discretion there. The formula shows that it needs to be in the base rate yes and base rate has to be reviewed at least once a quarter. So it doesn’t take too long for that transmission to take place.Latha: When you say once a quarter - does it mean that your asset-liability committee (ALCO) will do it by the end of this quarter? And is there a very good chance that this will translate into a base rate cut?A: I cannot answer that question without having looked at the computation of the base rate and without the ALCO having looked at it. So it will be very unfair for me to answer it right now saying whether there is a chance or not.We have not looked at the computation, the last time we looked at the computation the base rate was where we are today that is 10 percent.Latha: So when is the next review, end of this quarter?A: I don’t have that agenda as yet, the ALCO agenda has yet to be set for the next few meetings and once that gets set, we will know. Sonia: You said that credit demand continues to be weak. What kind of credit growth are you looking at say in the next six-eight months? A: The system is growing at around 11 percent, may be we will see a slight pickup there by the end of the quarter. I just need to give you a slight background of why this credit demand is looking so anaemic. There are two one-offs, things which have happened this financial year. The first quarter we have seen lot of FII investments in CP so that working capital demand which goes out of the bank to another source. Second thing the funding to oil companies, a part of which was subsidy funding has also gone away. So this one-off impact is seen on the year on year rate of credit growth which eventually will wear off.