Here are RK Bansal's views on RBI policy

In an interview to CNBC-TV18’s Latha Venkatesh, RK Bansal, ED at IDBI Bank gave his views about the RBI policy.The RBI Wednesday kept the benchmark repo rate unchanged at a six-year low of 6.25 percent contrary to expectation of a 25-basis-point cut.Below is the transcript of RK Bansal’s interview to Latha Venkatesh on CNBC-TV18.Q: What is your sense, RBIs indication seems to be no more rate cuts from them. Would that be true of the banks as well, no more lending rate cuts, will there be any deposit rate cuts?A: I have been always maintaining that repo rate is not a very big function where banks take their call to reduce or increase the interest rates. Banks, if you really see the last one month, in January also most of the banks have reduced their MCLR substantially, in fact without RBI taking any repo rate action at that point of time. Even some banks have reduced even from February 1. So, whichever bank there is monthly, I think they are reducing.IDBI also we reduced from February 1 though we normally do quarterly. However, because this time cost was going down so steeply, so the one thing which we have to see is that this CASA deposits are quite substantial and bulk deposits rates are also going down substantially because lending is not happening much. So, banks are flushed with funds so they will be forced to reduce the interest rates which is happening already.Q: You expect further cuts in both deposits and lending rates, approximately when, will it take a month, will it be immediate?A: I feel nowadays it has become a very dynamic type situation. Each bank is taking a review almost every month. However, I still feel because March being a financial year ending, banks may not take that view now up to March but certainly I think in April or so perhaps they will be forced to do that.Q: Would you say that these are the roadblocks? Unless you have a reduction in NPLs and further capitalisation, more rate cuts will not happen. Left to itself, with the current liquidity situation how much do you think deposits and lending rates can fall?A: As I said, deposit rates have been falling, but you, yourself have explained rightly that government savings schemes is one of the constraints then inflation itself is another constraint. If inflation remains at 4-5 percent, eventually banks cannot expect to reduce deposit rates below 6 percent or so if real effective interest rate we want 1.5-2 percent. So, there is not much scope beyond 6 percent on the term deposit. Similarly, saving bank, but that is again a tough decision for the banks if they have to reduce the interest rate on saving banks account. That could be one possibility at some point of time if credit offtake does not pick up. Banks have been reducing the interest rates on loans, but if we reduce the interest rate on entire loan book, it impacts the profitability and there your question of NPL comes into picture. As long as the NPL remains high, it starts impacting overall profitability.Q: You are the third banker in the last 48 hours to speak about saving rates need to be brought down. Usha Ananthasubramanian and PS Jayakumar referred to it yesterday when they spoke to our channel. Is there a chance at all? It is now or never, I guess because of the base rate itself, base effect itself, inflation will pick up to 4-4.5 percent by the time we get to March. So, is there a chance now saving rates will be touched by any bank and if yes, which bank will it have to be? Will it have to be SBI first? Will you only follow or will you take the lead?A: Taking lead in these matters is perhaps difficult, so perhaps bankers will like to wait for SBI to do it. As I said, inflation, if it remains 4 percent, one can argue that saving bank interest rates will not be below 4 percent. Maybe a stage will come where the saving bank product itself will be divided into two parts. If I allow transaction in the saving bank account like a current account then naturally, we should not pay 4 percent interest. But if it is a pure savings account, perhaps, you can allow 4 percent. That is only a concept which I have in mind which is followed in many countries. So, bankers perhaps will take a view on that at some point because otherwise, many people use savings account as a current account.Q: Yes, but now you are obliterating the difference between a savings account and a term deposit as well. Do you think a fall in interest rates from current levels, is there at all? Mr Manian says there is no scope at all. At current levels do you think you are at least able to pull back some NPLs because lending rates have fallen so much?A: Not because of interest rate going down that perhaps you can recovery NPLs. I do not think the interest rates becomes a factor after some time to those companies. There are other issues which we need to handle. Debt is already at a high level which is somewhat unsustainable, so only interest rate reduction is not going to help. But yes, that becomes an additional factor to help those companies. But I feel your first question that interest rate going down, it keeps on going down 10-20 basis points because of cost of funds going down and especially in the bulk deposit segment. Some of the banks which are not there in bulk deposit segment does not make a difference, but banks like us, it does make a difference, even otherwise.