Credit growth will start picking up from September

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.