A day after global ratings agency Moody's gave a negative outlook to the Indian banking system on concerns over asset quality and high interest rates, State Bank of India (SBI), the country's biggest lender, sought to allay concerns, stating the banking industry has a positive outlook.
"The outlook for the Indian banking industry is positive. Indians are good savers with 30% of the country's GSDP (gross state domestic product) going into savings. The banking industry has good prospects though our major challenge is to lend profitably”, said SBI chairman Pratip Chaudhuri.
On rising NPAs (non-performing assets), he said, “The NPA issue is a national issue. Many companies are finding it difficult to service their loans. Still our NPAs are well under control.”
In its latest report on Asia-Pacific Banking Outlook, Moody's said, "In India, impaired loans are yet to peak among public sector banks."
The agency further said though the government is "likely to remain supportive", options for the Reserve Bank of India (RBI) to slash lending rates are limited due to high inflation and the "modest fiscal capacity".
Amid high inflation and the Centre's inability to rein in fiscal deficit, RBI has not given into pressure to ease interest rates which is the highest among BRIC (Brazil, Russia, India and China) nations.
However, the Moody's report said interest rates are likely to fall during 2013 but still they will remain higher than the rest of Asia.
The SBI chairman said his bank has requested the RBI to cut CRR (cash reserve ratio by 100 basis points (or one%) and repo rate by 25 basis points (or 0.25%).
"Economists feel high interest rates can lead to stagflation (a situation characterized by high inflation and slow economic growth). Inflation is largely due to higher prices in manufacturing and it can be brought down by investments which can happen only when interest rates are curtailed”, said Chaudhuri.
On the compliance with the stricter Basel-III regulation, which require higher capital reserves, Moody's report said that most of the Asian banks comply with the requirements but the pressure to compete with peers from the western countries facing delays in execution may have forced countries like India to delay implementation.
The SBI chairman said to ensure implementation of Basel-III norms, the Government of India (GoI) wants all PSU banks to be well capitalized.
"SBI has raised Rs 7500 cr in the first half (April-September) period of this fiscal. We are also going to receive an amount of Rs 3000 crore from GoI as capital infusion. Our capital adequacy ratio is expected to be close to 11% by the end of March 2013”, he added.
Asked if SBI was contemplating legal action against Kingfisher Airlines, he said, “Kingfisher has been asked to raise equity of Rs 2000 crore. We are in constant dialogue with the company. But I would not like to foreclose the scope of our discussions.”