The demonetisation of old Rs 500 and Rs 1,000 currency notes has led to a spike in cash deposits and turned out to be a boon for government-owned banks burdened by asset quality pressures. The Nifty PSU Bank index has run up 2.9 percent since November 8, outperforming the benchmark Nifty 50 which lost 5.5 percent in the same period.
While most economists and market experts expect the Reserve Bank of India to cut repo rate by 25 basis points in Wednesday's policy review, the country's largest lender said a 50 basis point cut cannot be ruled out. The rupee would be an important factor influencing the central bank's interest rate decision, Rajnish Kumar, the managing director of State Bank of India told BloombergQuint.
Here are edited excerpts from that interview
Now that almost a month has passed since the demonetisation, you probably have a better idea of how credit growth in November has panned out?
Credit growth in November has been very subdued as a lot of money has come into loan accounts, due to which the outstandings have gone down. Stressed assets have seen some decline. People have deposited money in deposit accounts as well as loan accounts, including the stressed assets. So the November performance evaluation is going on and we will have a clearer picture in the next few days. But November has been more about deposits and less about credit.
In which segments are you seeing stressed assets decline?
Retail and small and medium enterprises, not much in corporate.
Have you seen any slowdown in loan enquiries and do you believe it will be a while before borrowers come back for say auto loans and more so housing loans, given that real estate prices are expected to fall?
There was an initial setback in November but we have seen some pick-up now in the enquiries. I think people who want to live in the house that they are looking to buy, their decision-making process is different from the people who want to invest. So I think if you need a house to live in, you won't keep waiting. That may not be the case for investors, who may prefer to wait. I don't think need-based demand is going to be actually impacted.
With respect to the RBI policy, on one hand, the minutes of the committee's last meeting had showed that the panel was concerned about the economic growth and we are already staring at a slowdown in GDP, albeit temporarily. On the other hand, the rupee is under pressure and global events will be critical this month. What are your expectations from the Monetary Policy Committee's decision and to your mind, what would be the ideal quantum of rate cut?
Everyone is factoring in a 25 basis point rate cut. But if the global situation and the exchange rates permit some elbow room to the RBI, they may even cut by 50 basis points. And that would be an ideal thing to do.
Will that 50 basis point cut be enough to spur demand?
There are several factors that influence demand and so we have to take a composite view. The demand filip can even come from the government spending and that depends on how much fiscal spending space the government has and how much they are willing to spend. Interest rates alone may not be sufficient to boost demand. In such instances, some fiscal measures will also be required.
Are you expecting any other policy changes from the RBI?
We are waiting for December 9 to see what happens to the incremental deposits which was important for Cash Reserve Ratio. Hence what action is taken on 9 December will also be a key determinant of lending decisions of banks.
In any case, the transmission in the form of falling MCLR and cut in deposit rates is already happening and assuming that the RBI cuts the rate 50 basis points, what magnitude of that cut will you pass on?
When we talk about transmission, there are couple of factors including cost of funds that influence it. In India, our liability side is skewed towards retail. There is not too much wholesale funding for us. It would be crucial is to see what happens to CRR on December 9 before we decide what we will be able to do with our deposit rates over the retail side. When it comes to bulk deposits, we have already cut as much as we can.
How does the combination of two events - the influx of deposits on one hand and temporary hike in the CRR on the other hand - impact SBI's net interest margin and treasury income for the December quarter?
Because of the CRR hike, some cut in MCLR did not happen. On the interest margin for the month of November, we are waiting for our internal analysis figures. Otherwise, there would be some rate cut for December. On margin impact, if the CASA rises, the average cost of funds comes down so there may not be much negative impact, but the CRR move will have a negative impact and so lowering the MCLR is difficult unless that extra CRR requirement goes.
Can we expect any spike in the bad loans in the third quarter of financial year 2016-17?
There may not be. As I said, some money has flown into stressed assets also. Percentage-wise we have to see because if the denominator (total advances) doesn't go up, and the stressed asset level remains the same or is marginally lower, there will be an impact in percentage terms. But overall I think there may not be much spike in NPAs given the situation so far.
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