Credit growth will start pick­ing up from Septem­ber

The Financial Express - - MONEY & MARKET -

Pub­lic sec­tor lender State Bank of In­dia (SBI) on Fri­day re­ported a 32% Y-o-Y fall in its net profit in Q1, but a 20% year-on-year growth in the op­er­at­ing profit. Speak­ing to re­porters, Arund­hati Bhat­tacharya, chair­man, said the credit growth will pick up from Septem­ber. Ex­cerpts...

RWhat does the bank's watch­list look like?

Around R3,000 crore has slipped from the watch­list in the quar­ter. Of the en­tire slip­page of R8,790 crore, close to 4,122 crore was from the na­tional bank­ing group. In every el­e­ment, be it agri­cul­ture or SME, there was less slip­page this quar­ter than the same quar­ter last year. In re­spect of the in­ter­na­tional bank­ing group (IBG), there is slip­page of Rs 987 crore, and in re­spect of cor­po­rates, the amount of slip­page is Rs 3,681 crore. There is some slip­page from the small value ac­count that were not part of the watch­list. What was the im­pact of reval­u­a­tion of re­serves from fixed as­sets on cap­i­tal ad­e­quacy ra­tio?

Of the reval­u­a­tion of re­serves from fixed as­sets, 45% has been con­sid­ered for cap­i­tal. So it has added around 72 ba­sis points to the cap­i­tal or around R14,384 crore. Merger of as­so­ciate banks is a sep­a­rate sub­ject al­to­gether, and we have said the as­so­ciate banks them­selves have quite a bit of fixed as­sets which is not com­ing in over here, this is SBI's stand­alone.

Now, the fixed as­sets of the as­so­ciate banks will also have to be reval­ued and that will also have to be added in. So, we are not look­ing at the as­so­ciate banks over here. The as­so­ciate banks, what­ever they are go­ing to cost, at this point of time, we had given a rough es­ti­mate of R3,000 crore and if we go in for the third ben­e­fit and if we don't, then ob­vi­ously that is go­ing to be much less. So the cost of the merger at this point is not re­ally huge and the cost is well within our ca­pac­ity to do it. I don't think it will im­pact any of the num­bers in any ma­te­rial way. Which are the sec­tors that could re­main un­der stress?

The max­i­mum amount of stress re­main in the sec­tors known to us. They re­main in the sec­tors of iron and steel, power and in­fra as­sets. So what­ever was stressed, those stresses con­tinue. What­ever we have given out in the form of a watch­list, I think all of those ac­counts still dis­play stress. We are still look­ing at res­o­lu­tion pick­ing up pace. Res­o­lu­tions have started but they have not picked up pace to that ex­tent, and es­pe­cially in re­spect of large ac­counts, we re­ally need to see much more move­ment. But that will hap­pen over a pe­riod of time as you know it is a process which takes time and large deals specif­i­cally take a lot more time than smaller ones. Our own es­ti­mate is that this will hap­pen to­ward the later half of the year and then we ex­pect bet­ter trac­tion. We will re­tain the watch­list num­ber at R31,000 crore so about that num­ber is what we are still look­ing at as ac­counts dis­play­ing stress and which need to be very care­fully fol­lowed.

The rea­son for that is last time when we gave the watch­list we had not in­cluded the IBG num­bers but we have re­alised that there are In­dian as­sets which have a for­eign leg and have in­cluded that. Do you see any pres­sure on net in­ter­est mar­gin (NIM)?

Over­all, there will be some pres­sure on NIM be­cause in the last quar­ter we had cre­ated about R45,000 crore of NPAs. So, that amount of in­ter­est gets clawed back and you do not earn on that par­tic­u­lar set of as­sets. That def­i­nitely has a down­ward pres­sure on the NIM. What do you think of trans­mis­sion of rate cuts into lend­ing rates?

We have trans­mit­ted be­cause from the time the rate cuts started we our­selves have trans­mit­ted 90 bps and if you con­sider the fact that the MCLR for­mula works on the rates of de­posits, around 40% are CASA de­posits which is in­ter­est rate-ag­nos­tic. So, 60% of your de­posits are where the rate changes oc­cur. So, if you take a 150 bps rate cut that mul­ti­plied by 60% means we have al­ready passed on 90 bps so what­ever could be passed on have been passed on.

Now, the fact of the mat­ter re­mains that if liq­uid­ity is plen­ti­ful then and there is the ques­tion of de­mand sup­ply, mean­ing if there is lot of sup­ply and not enough de­mand then also rates will start sink­ing a lit­tle even at the cost of mar­gins. That the banks will def­i­nitely do when they see credit pick-up hap­pens. Then you can make good in vol­umes what you don't get in the mar­gins. That has still not hap­pened and as and when the credit pick-up comes, it will also re­flect in the trans­mis­sion of rates.

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