Won't react to rivals' rate cuts till funds cost dips: Axis

Recent rate cuts by large rival banks will not compel Axis Bank to slash its own base rate -- a move that it will undertake only if its own cost of funds falls, says Axis Bank CMD Shikha Sharma.In an interview with CNBC-TV18's Ritu Singh, Sharma stressed upon the importance of "maintaining discipline" in calculation of base rates.Axis Bank's base rate stands at 9.85 percent, costlier than HDFC Bank and Citibank's 9.35 percent and that SBI and ICICI's at 9.7 percent.Sharma also commented on the RBI's recent guidelines linking calculation of base rates to marginal cost of funds, saying that Axis Bank would comply with regulations when they would come out (the RBI has given banks time to make the shift), but warned that the new mechanism may result in volatility of book if marginal rates are volatile.She also spoke on a host of other issues, including the macro environment and the central bank's recent move to hand out payments banks licences.Excerpts from the conversation on CNBC-TV18.Q: How do you view the developments in the payments bank space?A: Payments is a fast evolving space and lots of people are trying different things and therefore what it is going to do is definitely expand the market and create new offerings. As far as the bottom of the pyramid is concerned we are already doing a lot of stuff. We were one of the first banks to do a mobile to mobile money transfer where you can transfer money from one mobile to another mobile and you don't have to have an account at the other end. You can just take that SMS and go to an automatic teller machine (ATM) and draw out money and we were the first bank who actually worked with a tech money to launch this offering and launch it across our ATMs and many other banks have come out to the fold. We have also worked with a couple of business correspondent partners in doing remittances across rural urban corridors.Q: So you are doing a lot of the works that the payments bank do?A: Exactly, so it is fundamentally about as I said understanding what customers need and what is the most appropriate application for them and trying to do stuff like that.Q: Does it then still make sense for you to tie up for a payments bank with someone?A: Partnerships are going to be about wherever it makes sense for both partners. So, to the extent that payments banks have customers with whom they are doing payment solution and they need a bank for a more full-fledged complete account, or for loans or for credit card. We would be happy to look at those partnerships.Q: But have you held talks with anyone yet?A: It is very early days and we have spoken to a couple of people and we will see how it goes.Q: Another big news that is shaking up the banking industry is one of your rivals HDFC Bank, it cut its base rate by 35 bps. Has that at some level put pressure on the rest of the players in the industry that they have to fall in line, bring down their rates or at some point lose customers?A: We have actually been very disciplined about the way we have done our base rates and we have had a formula which uses a combination of old cost of funds and marginal cost of funds because when we changed the base rate it reprises all the floating rate loans in the system and about 74 percent of our loans are floating rate. So, we have had that stable formula which uses a mix of old funding and new funding to price the book. And even before Reserve Bank of India (RBI) did its repo rate cut we had actually cut our base rate because we had found rates coming down and we have pretty much stayed with that discipline. We review it at every Asset-Liability Committee (ALCO) and if the costs have come down we have passed it on to the customers.Having that discipline is important to bring certainty to lives of both our customers and to the bank. So, we would continue with that discipline and of course we will look at what the new regulations says and does and we have always been compliant and we will continue to be compliant, but we don't necessarily react to what any one bank does.Q: About the marginal cost of funding the RBI is now advising banks to take on, by when do you expect to completely move to that? Also do you see any problem in adopting that approach because some bankers they had raised concerns and maybe a lot of volatility if this methodology is adopted?A: First of all RBI has put out a discussion paper which they will comments and then decide how exactly they want to approach it. The discussion paper talks about the implementation from April 16, so it is some time away. And we will wait and see what the new regulations come up with and as I said we have always been compliant. So, if the regulation wants something we will do that, but it is true that if you price the entire book of marginal rates and marginal rates are going to be more volatile than average rates, we will have to live with that volatility and in the past when rates have spiked base rates have not spiked along with the rise in repo rate. So, that is the way the banking system is structured. If you want to move to a newer system then it has consequences and everybody will have to live with those consequences.Q: Talking about Reserve Bank of India (RBI) do you think the inflation that has come much below their comfort levels with growth the way it is, is there more headroom do you think. There may be another rate cut at least left in this fiscal or do you expect the monsoon for example to play spoilsport?A: I think that is the question you should ask the Governor.Q: In your sense do you think there is headroom for rates to fall further? Is the environment conducive?A: Inflation is definitely looking much more benign today and food inflation currently looks under control so consumer price index (CPI), wholesale price index (WPI), food all the key indicators are under control and looking like we should be able to do better than the target that was set at 6 percent. All things be cool there would seem to be room for that but as I said RBI’s is a person to talk to you on this. Q: Since your credit growth is so closely linked to the growth of the economy do you believe it is firmly on an uptake now? Can we clock the 8 percent rates that the government is talking about in this fiscal? A: Currently GDP is running at around 7 percent. We do believe that it is on the uptake but whether it is going to hit 8 percent it is difficult to predict at this moment. Clearly, the good news is that things seem to be on the mend path and we think that growth rate should begin to go up from here. 8 percent will probably happen, may not happen in three-six months may take a little more time but it will get into that direction.