Trend of softening interest rate is here to stay, says Rajnish Kumar

SBI recently sprang a surprise by reporting a sharp rise in retail loan slippages in the Q1 FY17

The country’s largest lender, State Bank of India (SBI), recently sprang a surprise by reporting a sharp rise in retail loan slippages in the first quarter ended June 2017. Terming it as an unusual quarter in view of the bank’s merger with five of its associate banks, Rajnish Kumar, managing director (National Banking Group), SBI, tells Abhijit Lele that the lender has a firm grip on asset quality. He also says interest rates will trend downwards. Edited excerpts:
 
The market got a surprise by huge retail loan slippages, and you described it as an unusual quarter. Should it be taken as a one-off event only?

 
It was a one-quarter event. It (higher level of slippages in retail) is not a whole bank phenomenon but is restricted to certain geography. I do not think, going forward it is going to be like this. There will be normal slippages, which will happen given that retail loan book is about Rs 9,50,000 crore.
 

We are halfway through the monsoon season. Rains have been inadequate in some parts of the country, while others have experienced floods. Will it increase risk in the farm loan portfolio?
 
Agriculture is always like that. We have de-risked our agriculture loan portfolio substantially. Crop loans are sensitive. Most of agri-loans are happening through tie-ups, gold loans or are asset backed. Some extra efforts would be required in states like Karnataka, Maharashtra and Punjab where merger impact (of associate banks) is significant. These are the three states where agriculture stress is elevated.

 
What are the recovery prospects? How much do you expect to get from state governments that have announced farm debt waivers?
 
After the merger of associate banks, SBI has full control over operations now. During the merger process, some attention got diverted. But now, all units, including management information systems (MIS), are functioning normally. We also have a special team at the corporate centre (SBI headquarters) that will do monitoring of merger-related issues.
 
The main thing is the management of non-performing assets (NPAs). We expect about Rs 3,000 crore from the governments of Maharashtra, Uttar Pradesh and Punjab as part of farm debt waivers. 

 
What is SBI’s target for credit growth in retail, small and medium-sized enterprises (SMEs) and agriculture?
 
The retail segment is expected to grow at 16 per cent, and agriculture and SME at 10 per cent. Overall, the growth trend for the three segments of the national banking group is alright.
 
The bank recently slashed  interest rate on savings deposits up to Rs 1 crore by half a per cent. Will the interest rate continue to soften, and when can we expect the bank to pass on the benefit to borrowers?
 
Outlook is softening for interest rates; they are not going to go up. As for passing on the benefit of reduction in costs (of deposits) to borrowers, we have already done that.

 
The bank reduced the marginal cost of funds-based lending rate (MCLR) by 90 basis points in January.
 
It is possible to cut lending rates only with further reduction in deposits rates. The asset liability committee (ALCO) will review is the flow of deposits and what is the trend in competing products. We will be able to take a better call when ALCO meets in the last week of this month.
 
Coming to rationalisation of branches after the merger of associate banks, why has the bank advanced the timeline to September 2017 from September 2018?
 
There was an issue of technology but it has been resolved. So, our capability to merge branches has improved and with it the bank can merge almost 500 branches in one week. That way we will be able to complete the rationalisation process (for branches) by September. We have already done that for about 600 branches till early August.

 
How have the goods and services tax (GST) roll-out and the Real Estate Regulatory Authority (Rera) impacted the business?
 
Builders have registered in certain states like Maharashtra. In a few states, the authority is yet to be notified. Things are now settling. Both the GST and Rera are good initiatives for long-term development. Wherever Rera is yet to be notified, state governments should move fast. Housing, especially affordable housing, is a big activity. Builders should not delay registration. Now the festival season is starting and in India, much of business happens after September. The second half of the financial year is always a busy period. Gearing up for the business is not going to be a problem as we have a lot of people now after the merger of associate banks.