See 25 bps cut in repo or CRR tomorrow: ING Vysya

A key trigger for the market may come from the Resreve Bank of India's monetary policy announcements tomorrow. Shailendra Bhandari, MD & CEO of ING Vysya Bank expects a quarter percent reduction in either the repo rate or the CRR from the RBI policy. He even thinks the apex bank may cut both CRR and the repo rates.

Also read: Unlikely to see rate cut from RBI tomorrow, says UBS Below is an edited transcript of Shailendra Bhandari's interview on CNBC-TV18. Q: What are you expecting tomorrow? Will there be a cut or not? A: It is a bit of a 'toss a coin' situation. But our houseview is slightly more optimistic. There is a reasonably good chance of seeing either a quarter percent decrease in the repo rate or CRR. There is an outside chance that we might see both. So, we are quite optimistic that we will see atleast onem if not both of those. Q: The easier one to predict is the CRR cut. Is that more likely, if you had to choose between the two? A: With the busy season coming up, although there is no immediate liquidity pressure, it would make sense for the Reserve Bank of India to preemptively add some money. From the bank’s earnings point of view, CRR cut always helps because it reduces the cost of deposits. But we believe that some amount of signaling is necessary. The chances are that if there is only a CRR cut, banks may be little reluctant to reduce their base rates. If the RBI is getting the same amount of nervousness about growth prospects like all the market pandits, they do need to see a signal. So, yes, CRR cut is easier between the two, but that both may also be possible. Q: A lot of people think that the RBI is still fretting about inflation. Others feel it has been encouraged by the government and therefore might make a concession, despite high inflation. What is the debate on the repo rate cut? How do you think the RBI’s mind is working? A: The fundamental structure of inflation hasn’t changed. It is still very high with a 7.5-8 percent range. But if you look at the last monetary policy, two good things happened. One, rupee the stabilised from 55 plus levels to around 52.50 to 54. That is good. Secondly, fall in international oil prices, which don’t seem to jump up soon. Now the question is, ‘does the RBI feel that there is some quid pro quo?’ The finance minister did carry out what the governor said. So, there is a sense of quid pro quo. The reality is despite the fact that the stock market is going up, looking at the grass roots, growth is still an issue. Projects are still not happening. There is some amount of consumption at the individual consumer level. But if you look at the basic drivers like white goods, durables, cars, two-wheelers, we may get a blip on Diwali. But the underlying trend is still not very strong. So, there is an argument. If we look beyond just the simple inflation numbers, we could make a case to cut it by a quarter percent. _PAGEBREAK_ Q: You said the business momentum is still not back, but your numbers were pretty strong for the quarter. Are you seeing any signs of flagging off at ING Vysya? A: We are happy that we did this for the twenty sixth quarter in a row, year-on-year increase in profits. Our numbers were actually stronger than they seem. At the gross advances, they went up by 21 percent, but after we were repaid Rs 1,100 crore by a large telecom account. Similarly, our net profits went up by 30 percent, but only after we took a very conservative interpretation of guideline on derivatives. We wrote off the entire exposure out of other incomes. So, we do see strong momentum. Our credit quality remains outstanding. So, our net non-performing asset (NPA) is down to 0.13 percent. Our provision coverage at 93 percent is highest in the market. Q: Your margins have also gone up to about 3.45 percent. Do you see any headroom there? A: We have been very consistent over the last three-four years. If you take the whole year average, net interest margins (NIMs) have been around 3.3 percent. On the upside, they go around 3.5-3.6 percent and on the downside maybe 3.15 percent. We believe this is still in the broad range. We may inch towards the higher end of the band. But broadly the 3.3 percent to 3.5 percent range should be holding. Q: Even if you get a CRR cut this time, it might not find full translation into the banking system. What is your view? A: There are few reasons. Banks need to see two things to act. One is a policy trigger. In the absence of a rate cut, there is no policy trigger. The other is that if you look at banks, the private sector banks, credit growth is reasonably healthy, despite the fact that the people who are impacted are the ones who were relying on large projects and were looking to at large loans for basic Greenfield infrastructure. For the rest of us, who were looking at working capital, consumer finance, it has slowed down. From doing 23-24 percent a few years ago, maybe it is doing 21 percent now. But it is not bad. So, in a situation like this, there may be a tendency for banks to improve the margins. When the RBI gives a signal then we will cut the rates.