‘Sub-6% deposit rate will cause social uneasiness’ There’s A Limit To Rate Cut By RBI: PNB Chief
SS Mallikarjuna Rao moved to Punjab National Bank (PNB) last week. In an interview, he discusses his plans for the merger of Oriental Bank of Commerce and United Bank of India with PNB. Excerpts:
You have taken over at a time when merger of PNB, OBC and United Bank has been announced. What are your priorities?
There is no second thought on why mergers are required. Mergers will throw up wonderful opportunities and fair amount of challenges. PNB will once again be the secondlargest bank, with a well spread geographical presence, although there may be a few redundancies with respect of OBC. United Bank offers many advantages on footprint. Challenges are three-dimensional: One is business integration, which is the easiest since customers are being served digitally. Second is technology and if pre-integration activity is done properly, it can be dealt with in a smooth manner. Third is employee integration, where the best service conditions among the three banks will be offered. Emotional integration is an area where the top and middle management will move to work as a catalyst since things don’t change overnight.
How will you ensure that your customers, especially senior citizens, do not suffer due to branch closure after the merger?
Although a decision has not been taken, a branch may be shut only if there is another one in a 2-km radius. If there are three in this radius, they will be assessed before a decision is taken. Banks are also looking at other ways for doorstep delivery of services.
While lending rates are falling, there is a concern that those with fixed deposits, especially senior citizens, may be affected...
Interest rate reduction for advances can’t be a panacea for the economy. There is a limit below which you can’t reduce rates. Repo rate has come down to the lowest level in the last nine to 10 years and there is an indication that it may reduce further. In our country, if deposit rates go below 6%, the
RESPONSE TO SPECIAL OFFERS
... A little bit of bullishness has returned and we are also working to improve the sentiment through co-lending (with NBFCs) and by garnering new customers.
now. Retail and MSME lending will improve re will be social uneasiness as many senior citizens depend on the interest income. If alternative investments are available, principal is not always assured. So, we need to ensure interest rates are not very low. The sentiment that the RBI is creating also has limitations. Hopefully, other factors will play out and December onwards, if there is an improvement in the economy, there may not be too many reductions. Our margins have come down from over 3% to 2.52.6%. Our deposit rates are hovering around 6.5% but we may not go below 6%. Our asset-liability committee will decide on it and also see if we will launch a term deposit linked to the repo rate or MIBOR.
It’s been a week since the special offers and Navratri started. How is the response?
Response has been good but we will see growth pick up over a period of time. Since November, when liquidity crunch started for NBFCs, auto loan sanctions were affected. Plus, there was confusion over electric vehicles, which has been clarified by the government. It also offered other incentives such as depreciation benefit. In the last few months, lot of lending has taken place to NBFCs, which have also restructured their balance sheets, resulting in easier conditions... Government has already announced tax cuts, whose impact will also show.
There is a surprise every quarter and the worst does not seem to be getting over. What is the situation in the corporate sector?
Our economy is intertwined with the global economy. The assessment of the worst being over was premised on the problems being identified and tackled in the large corporate segment. Of late, corporate governance issues have cropped up in the quasi-financial sector. IL&FS was a big jolt to the system. Just when we thought that this was addressed, some other companies faced issues such as DHFL, Altico and now PMC Bank and HDIL. HDIL is unlikely to create any significant impact, we will wait and see how things play out at PMC Bank.
Vehicle delivery has started picking up