State Bank of India Chairman Pratip Chaudhuri says though Friday’s CRR (cash reserve ratio) cut will help ease short-term rates, liquidity may continue to be tight and, hence, a further 25-bp (basis point) cut in CRR can be expected. In this interview with Abhijit Lele just three days before the mid-quarter review of the monetary policy, Chaudhuri also says the country’s largest bank can raise in excess of Rs 12,000 crore through a follow-on public offer or a qualified institutional placement. Edited excerpts:
The Reserve Bank of India has reduced CRR 75 bps to 4.75 per cent. Do you think the move is adequate to ease liquidity pressure?
The CRR cut will definitely ease the liquidity pressure and cool down money market rates — certificates of deposit and commercial paper — which have been crossing 11 per cent in some cases. However, the liquidity situation will remain tight; as much as Rs 25,000 crore has gone out of the system for the NHAI bond offering and Rs 30,000 crore for fixed maturity plans.
When do you expect the situation to improve?
Banks will be in a better position on resources in April. Liquidity will be influenced by what RBI does in the foreign exchange market and the government’s borrowing programme.
Credit has been growing at a slower pace in the current financial year. Have you seen any improvement in the last few weeks?
Yes, we have seen an uptick in credit demand of late. With money market rates high, companies have moved to the loan market at 10.5-10.75 per cent.
These loans are basically for meeting short-term requirements. We expect to close the year with 16-17 per cent growth in credit.
If the liquidity situation improves next month, as expected by you, will it prompt banks to reduce interest rates?
It is possible for banks to reduce rates. The beginning could happen with a cut in lending rates, which would be marginal though. Regarding deposit rates, banks will still face challenges from schemes like postal deposits, which offer rates of eight per cent and above.
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Do you see any RBI action to motivate banks to cut rates?
There is definite room for an up to 50-bp policy rate cut and banks can take the signal to pass on the benefit to the customer. Even with a 50-bp cut, the policy rate will remain high, with the reverse repo at seven per cent and marginal standing facility at eight per cent. In addition, a 25-bp reduction in CRR can release more resources, creating ground to ease lending rates.
SBI has reported a sharp increase in bad loans in the current financial year, with gross NPAs at a staggering Rs 40,000 crore. How long will the asset quality pressure continue?
The worst period is behind us. The bank will also be particular on ensuring recoveries.
The net interest margin has improved for the bank in the previous quarters. Will the trend continue for the fourth quarter?
Margin expansion will continue on the overall book, as we expect the net interest margin to be around 3.9 per cent at the end of the fourth quarter as against 3.82 per cent for nine months. For the domestic book, it will be even better as we expect it around 4.25 per cent (it was 4.12 per cent for April-December 2011).
Given the high interest rate scenario, what kind of loan growth are you looking for in the next financial year?
Credit growth will be at least 15-16 per cent in the backdrop of seven per cent economic growth and inflation hovering around seven per cent.
Is your capital enough to support balance sheet expansion?
With the government infusing about Rs 8,000 crore, SBI will have headroom to go for a follow-on public offer, or can place shares with institutional investors. In addition, there is internal profit generation of Rs 10,000-12,000 crore in the current financial year. We can raise in excess of Rs 12,000 crore through an FPO or QIP. We’ll take a decision after consulting the government.