To partly offset the sluggish corporate credit demand, State Bank of India is eyeing healthy growth in retail credit in the second half of this financial year, Managing Director and group executive (national banking) B Sriram tells Abhijit Lele. Edited excerpts:
What growth did you see in the first half of this financial year?
For three months, the pattern of credit growth has been the same---steady growth. The retail credit segment has shown year-on-year on growth of 12-13 per cent, against seven per cent for overall operations. In September 2013, yields had gone up and a lot of companies had come to the bank to draw credit. The base effect is high and it will have some impact on annual growth.
Is the growth in the retail segment better compared to the year-ago period?
For me, retail has three segments - personal, agriculture and small and medium enterprises. Together, these have a combined share of about 44 per cent in business. The agriculture and personal segments aren't impacted much by interest rate changes; the growth is steady. In the home loans segment, we are sanctioning Rs 150-160 crore a day.
The automobile sector has shown a pick-up in demand in the past few months. How is that being reflected in financing two- and four-wheelers?
If you look at the growth in car loans in the first quarter, it was very low---five-six per cent. In September-October last year, we found the economy was growing slowly and there was uncertainty about growth in the market. Also, there was a slight increase in defaults. So, we tightened eligibility norms and stepped up risk management. This led to a slight fall in the pace of car loans for the next six-eight months.
In June this year, we carried out a review again. After a new government came to power at the Centre, stability returned and growth started improving. We were confident the bank would be able to manage defaults much better. So, we relaxed some eligibility norms, and this has started resulting in numbers (higher growth).
Last year, we recorded 500-600 car loans proposals a day; this year, we have touched 1,000 a day. These two segments---automobile and home loan businesses---will give us reasonable growth. For 2014-15, we seek 17-18 per cent year-on-year growth for home and automobile loans.
What is the situation on the farm credit front?
It has shown a reasonably good pace, already recording 30-35 per cent of our budgeted target for the year. The next three months will be critical, as major disbursements will happen at that time.
At the beginning of the second quarter, there was apprehension about the delayed monsoon and its effects. What is the outlook on demand now?
The credit outlook for the rabi season is okay. There were delays and, for first two months of the year, and we saw lower offtake. But it is substantially better now. We also track credit renewals; in most states, it is fine. There have been healthy renewals, based on the revised scale of finance. We are confident of doing better in agriculture.
This time, we are trying to do things differently. We are trying to get end-to-end business of companies that have backward and forward integration with agriculture. We are doing this in coordination with corporate account groups and mid-corporate groups. We hadn't thought of large advances. Most of our agricultural advances are through Kisan Credit Cards and 34 per cent of the advances are secured by gold.
On the liabilities front, your group has a stable deposit base. The bank has reduced interest rates on short- and medium-term deposits. Is it getting more deposits and is deployment a challenge?
We reduced the rate a little due to our excess liquidity. We felt since the advances side wasn't growing much, there was no way the balance sheet could grow only on one side.
While the low-cost deposit base---current account and savings account deposits---remains quite good, term deposits have also shown healthy growth, about 25 per cent. Basically, that is because people do not see rates going up; they might remain at the same levels, or on the way down. It might take six months or a year. The trend is rates might be stable, with a downward bias. Many have started to lock themselves in at current levels. The auto-sweep facility to move money into term deposits has also contributed to growth.
Do you see further softening of the interest on deposits next year?
Interest rates will continue to map the yields on government securities. On softening, I do not know at this moment; we will have to wait and see how the inflation figures are. I do not think there will be lot of work on the interest side till the Reserve Bank of India is comfortable with inflation.
Interest rates of banks are influenced by liquidity, which is huge. Have we entered a phase of secular decline in interest rates?
Yes, to an extent. But our rates are also determined by policy. We have not entered a phase of a secular drop in rates. We have to watch again after three months.
