United Bank of India (UBI) announced a base rate reduction of 25 bps to 10 percent after the Reserve Bank of India cuts repo rate by 25 bps to 7.75 percent in a surprise move on Thursday.
Speaking to CNBC-TV18, P Srinivas, MD and CEO, UBI said the cut in base rate will help bank increase credit. The state-owned bank has no immediate plans to revise its deposit rates as it was offering one of the lowest deposit rates in the industry.
According to Srinivas, the bank had earlier reduced the deposit rate to 8.5 percent for one-year tenure which is the lowest given other banks are offering it at 8.75 percent.
Going ahead, Srinivas believes market will move up further post the rate cut by the central bank. He expects a strong Budget on the back of recent policy decisions and rate cut by the RBI.Below is verbatim transcript of the interview:
Q: You are the first bank to go ahead and cut the base rates. Are more cuts expected?
A: We wanted to cut our base rate even before because we reduced our deposit rate to 8.5 percent, one year deposit rate, quite a long time back. Looking into the position of the United Bank of India you can understand, maintaining a large amount of liquidity with interest rates coming down because you have so much of liquidity surplus maintaining in the parts of country with so much of current account saving account (CASA) so there is a need for me to increase my credit and I can increase the credit only if the interest rate is a competitive interest rate.
Q: This rate cut was not fuel by this morning action. Had you already thought about going ahead and cutting your base rate?
A: This year has speeded up otherwise I would have waited for some more days. Now effective from February 1 we have reduced rate.
Q: Do you see other banks following suite?
A: It all depends upon the cost of funds. As United Bank of India we have one advantage; our cost of fund is low. We get more than 40 percent from CASA and are sitting on a liquidity surplus and so, this is the right time for us to go into the market for increasing the credit by reducing our base rate.
We do not want to loose the opportunity. So each bank will have its own game plan and the cost of funds for each bank is also different. We are one bank not having dependency on any kind of bulk deposits and that is an advantage.
Q: How will this impact your net interest margins?
A: It will not impact NIMs in a big way because the interest rate reduction has increased the yields of the treasury profits which we gain. So I am able to compensate automatically.
Q: What would be the quantum of gains in your bond portfolios because we have seen a seminal fall in the yields?
A: They are continuously falling and therefore, wherever we are selling we are repurchasing it and replacing it with subsets. We are having a surplus, we have some restrictions on credit flow for the last one year. So, our surplus amount is going only in the government treasury and that is like an advantage to us.
We have substantial treasury bonds. So, as we get some advantage of profitability in treasury gains it is always better for me to go into it.
Q: On the back of the cut in the base rates how much do you think credit growth demand will accelerate? What are your current expectations?
A: I am more interested, first of all we have sizeable sanctions unused. People are not utilising even the sanctioned limit, because interest rate, market interest people are getting at a cheaper rate.
My quantum is much less even if I pick up Rs 5,000-10,000 crore or just Rs 5,000 crore which is a big advantage for the bank of our size and especially in the state where we are.
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