The chairperson of State Bank of India, Arundhati Bhattacharya, says she does not expect any changes to current interest rates in the bimonthly monetary policy review by Reserve Bank of India scheduled to be announced on Tuesday.
In an exclusive interview to The Hindu , Ms. Bhattacharya said, “I don’t think the Reserve Bank of India would be looking at reducing interest rates as there might be a lift-off from the US Fed. Until there is clarity on the way the Fed is moving, I think they will hold rates.”
The chairperson of India’s largest bank added that she sees a recovery period in the economy as the government has begun addressing a number of things holding projects back. In particular, she pointed our renewable energy, roads and highways, and smart cities as bright sparks.
“There are a number of things being addressed by the government,” she said.
Rise in bidding
“We had a number of renewable energy projects, and now we see increased bidding in roads and highways. Similarly, the railways are coming up with new projects. In power transmission, we have seen new tenders. Smart cities are a new area. We are seeing a number of tie-ups in defence. Our belief is that these developments will see more demand for loans.”
She said SBI is on the mend as far as asset quality is concerned. “We are hopeful that the government will extend support to (certain sectors).”
Read the full interview:
SBI has shown better numbers on the asset quality front in Q2. Also, there is a feeling that bad loans may have peaked. Do you expect asset quality to improve?
We see improvement, undoubtedly. However, a few areas need to be monitored, including five or six big accounts. The iron and steel sector, for example, needs support. We are hopeful the government will extend support so that these accounts have no difficulties. Overall, though, we are definitely on the mend.
How have new regulations such as strategic debt restructuring (SDR), which allows banks to take management control of chronic defaulter companies, helped them to improve asset quality?
These norms will help because the provisions will have to be included at the time of giving the loan. The current SDRs are done after collaboration with promoters, with the intention of either bringing in strategic investors or someone to whom the company could be sold. Today, we do it with promoters who are willing to collaborate.
There were two companies in the steel business where SDR was invoked. But finding a buyer in this market could be difficult. Will banks have to take a small hit while selling it to an investor?
These deals take time. These are big companies, so due diligence is a must. I will not say that there is no interest from investors. A small hit may have to be taken, but it depends.
SBI’s performance reflects underlying economic activity. Do you see an economic revival in terms of project investment or an increase in loan demand from the corporate sector?
I don’t have big projects in hand, but I do see a recovery. There are a number of things being addressed by the government. We had a number of renewable energy projects, and now we see increased bidding in roads and highways. Similarly, the railways are coming up with new projects. In power transmission, we have seen new tenders. Smart cities are a new area. We are seeing a number of tie-ups in defence. Our belief is that these developments will see more demand for loans.
What kind of credit growth does SBI expect this year?
We are expecting a 13-14 per cent credit growth, not including the projects I mentioned. Much of it will happen from Q4 this year or Q1 the next. This year’s growth will come from across sectors, but retail will be a big driver.
The bank had reduced its base rate sharply though it did not impact the margins in Q2 (3.32 per cent from domestic operations). Will you be able to protect your margins in the next few quarters?
Until now, the net interest margins are stable. The base rate cut was factored into the Q2 margins. Our re-priced deposits (from a year ago) will come up for renewal. That will give us some support, so we are hoping to maintain our current margins.
Will the cost of funds come down further? Do you think a further base rate cut is possible even if the Repo rate remains unchanged on Tuesday?
Yes, the cost of funds is reducing gradually. We are not looking at any cuts at present.
Your expectation from the RBI monetary policy review on Tuesday? Is there scope for a repo rate cut?
It might be status quo. I don’t think RBI is looking at reducing rates as there might be a lift-off from the US Fed. Until there is clarity on the way the Fed is moving, I think they will hold rates.
SBI had launched a six-pronged strategy to improve several aspects of the bank .
The results are for all to see. In risk management, we have changed the organisational structure and brought in technological tools, changing the underwriting and monitoring processes. The second thing is customer delivery. We have a number projects to ensure customer interaction is better. We have also moved ahead on digital.
The other area is asset quality, and as I said, except for one or two sectors and few large accounts, asset quality is definitely stabilising. We hope to show better results. There are initiatives on the digital front.
The objective is to make technology more resilient. For home loans, car loans or any other retail loan, one can do everything online.
