‘If CASA Comes Down Further, Cutting Rates Will be Difficult’
After declaring third quarter earnings, State Bank of India chairman Arundhati Bhattacharya spoke on a range of issues varying from the impact of demonetisation to recovery of bad loans, and the outlook on economy. Saloni Shukla and Pratik Bhakta bring you the highlights. Edited excerpts:
Bad Bank Anything that will help to put these stressed accounts into becoming standard would be welcome. Now whether this is the best solution or otherwise is difficult for us to opine, because even in respect of a bad bank what you do need is capital and without capital it may not work. To that extent, this is a decision that the government needs to take and they have not approached us in this respect.
SBI Subsidiaries: SBI Life JV partners have now advised that they would not like to dial-up, so there is no further action over there other than preparing for an IPO, which we will decide after necessary consultations with the board. In respect of SBI Cards, we are hoping that we would be able to complete this job quite quickly. Most of the negotiations are over and with a new partner coming in there are negotiations regarding the shareholders agreement etc. We are very close to completing the deal. For the general insurance business, the valuation is going on because the JV partner has indicated that they would like to dial-up, so the appointment of the valuer has happened and the valuation exercise is currently on. We have also put out a RFP for a JV partner in the payments space, so that process is on.
Associates’ Merger Delayed: Capital raising plans will be put on hold because there is the merger of associate banks that will be happening. First we will go ahead with the merger and then only will we think about capital raising plans. We are quite ready for the associate banks’ merger and as soon as the government notifies the final order we will be ready to kick it off. We had planned to do it by March and we were quite ready for it. Again due to demonetisation, that has got deferred. So it will probably be a deferment of a quarter.
Interest Rate Outlook: Even if MCLR (lending rates) has been brought down to 8% that will give us a big upside on the margin rather than the downside. Also, if CASA comes down further, rate cut will be a problem. The money that has come in has been deployed both in loans and treasury products. But having said that, it’s a fact as CASA goes out, your cost of funds will go HIGHS & LOWS up. And as it goes up, it obviously reduces any space for any further relaxation of interest rates.
Credit Growth: Overall retail growth is 18%, but for corporate, the growth is very low. Though we do expect that in the last quarter the corporate portfolio will grow but even then we would like to be cautious, therefore overall we are not expecting to be growing beyond 6.5% for the full year. The loan book on the retail side in the month of December was subdued and we expect some corporate
growth to surely pick up, like food processing and other SME areas. Also, the cyclical industries like cotton and sugar which got sidelined during demonetisation are recovering.
Outlook on Deposits: We have received .₹ 1,33,000 crore as deposits, first we thought that the entire amount will go out but later we revised estimates and thought that at least 40% of that money will stay back. Now we think that more than 40% of the money deposited in the bank could remain back. The cash withdrawal bars on current and cash credit accounts have been lifted, so we are seeing withdrawal in those accounts. But we will have full estimate on the money flowing out in a couple of days. More or less our experience is that money deposited in rural areas will flow out because those people did their business in cash. But in urban areas, a lot of money came in from people who had saved money in cash, that money is unlikely to go away.
Stressed Loans: We have already given an outlook for slippages at around .₹ 40,000 crore for this year, I don’t see that number coming down. But going forward for the next year definitely these things will start looking better. So far, we have clocked .₹ 29,000 crore of slippages. The fact of the matter is that chunky pieces are obviously out of the way. Overall stress reduction will only happen when the economy is doing much better.