In a move to mobilise its credit growth, State Bank Of Travancore cut its base rate by 20 basis points to 9.95 percent. The bank cut its base rate from 10.15 percent to 9.95 percent effective October 5, 2015The bank’s cost of funds, which stands at 6.5 percent, is expected to soften further, Jeevandas Narayan, Managing Director of State Bank of Travancore tells CNBC-TV18. He expects its credit to grow on the back of increasing home and automobile loans. This comes after a whole lot of banks cut their base rates including UCO Bank, State Bank of India, Axis Bank, Bank of India and Andhra Bank. Below is the transcript of Jeevandas Narayan’s interview with Mangalam Maloo and Ekta Batra.
Mangalam: Could you give us a sense of what percentage of Reserve Bank of India’s (RBI) 120 basis point rate cut since April have you taken in State Bank of Travancore?
A: In fact, we have done it in two lots and we are one of the first to be off the block in March with 10 bps cut and with this the total pass on would be in the range of 30 bps now. We were at 10.25 before that and from there we came down to 10.15 in March and after that the next phase we have taken is yesterday, to be effective from Monday.
Ekta: What is your cost of funds right now and do you think that there could be a further reduction in your base rates in the coming months?
A: As my good friend Shyam Srinivasan, MD & CEO of Federal Bank mentioned, it is more a question of timing rather than capability at this point. And talking about cost of funds, we are in the range of around 6.5 now.
Ekta: Do you expect further softening?
A: It should be there, because there is a lot of liquidity overhang but the factor to be looked at is how the credit growth happens going forward, because a lot of people are bullish now with these cuts across the board which are expected to happen. The offtake especially would be triggered in home loans and automobile loans and would spread to other segments as well. So, let us watch this going forward because there is ample liquidity and now with this sort of a cut, there should be some action on the ground.
Mangalam: In that case, what is the kind of credit offtake you are looking at because even after a 30 basis point cut your base rate stands at 9.95 which is at the higher end as compared to the other banks as well? So, at these rates, would you still expect a credit offtake improvement and if yes, could you quantify that for us?
A: I think so because even if you talk about base rate at around 9.75 or 9.95, ultimately it is a couple of very large corporate with the best of ratings that can really be given these base rates, if you talk about corporate credit. And of course, as you know, nothing much has been happening in corporate credit, but the whole action is on the small and medium enterprise (SME) and in the agriculture as also the personal segment (P segment).
However, P segment, no doubt, we have seen housing loans, most of the banks are as close if not at the base rate itself. But then SME and all that, I do not think any of the banks does it at base rate. So, once the retail growth happens and that sets the SME segment as well, which has started happening, the margins and net interest margins (NIM) -- of course there will be pressure on NIMs, that is what is being said because there is always a lag effect also because all your interest varying assets gets reprised now with the cut in base rate but spreading to deposits, it will take some time when the repricing happens.
But nevertheless, the point is that, yes, there is scope, there will definitely be pick up and there may not be an immediate impact in terms of banks having to give up on NIMs because ultimately I believe that there could be deposit cuts also which could be slowly coming in.
Ekta: Your NIMs were 2.67 percent as of the previous quarter. With this additional 20 basis point rate cut that you have given, how much pressure do you envisage on NIMs?
A: For the September quarter of course, this effect would not be kicking in, so I think there should be a further improvement of around at least 20-25 basis points happening, at least 20 which should be happening. But going forward, again, it is a function of the yields versus the volumes, so in case the volumes start coming in, there will not be a net effect despite the fact that the yields have gone down. So, more or less, it will get neutralised and there will be a slight downward bias on the NIM, but there may not be a drastic reduction on NIMs.
Ekta: What is your sense in terms of provisions and hence asset quality going forward because provisions last quarter were at around Rs 300 crore. Eventually, do you think asset quality concerns will prevent you from cutting further base rates?
A: Asset quality concerns, I really cannot say that everything has come out of the woods so to say, but with the credit pick-up, these concerns also will get a tempered so to say to some extent because ultimate when the book is growing, you get also sufficient resources as also sufficient strength to take on a bit of slackness in the quality or the portfolio. So, I believe that while we are not totally out of the woods, going forward with the expected boost in credit pick-up, it will get tempered to that extent.
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