Bank’s chairman says high-cost funds, lower credit demand putting pressure on NIM.
State Bank of India (SBI) today said that it was examining the possibility of another round of reduction in its benchmark prime lending rate (BPLR), while adding that it was offering the cheapest rates across loan categories.
At the same time, the bank’s chairman OP Bhatt told reporters at a press conference that funds mopped up at higher rates between October and December, and lower credit demand, were putting pressure on SBI’s net interest margins.
“In the fourth quarter, NIM (net interest margin) would have dropped to around 3 per cent, from 3.16-3.17 per cent earlier. But we are hoping to keep it at around 3 per cent during the current financial year… Any small variation in margins has a large impact on the balance sheet,” he said.
During the third quarter of the last financial year, SBI had launched 1,000-day deposits at over 10 per cent, which helped it to raise around Rs 1,000 crore a day. While the pace has dropped to around Rs 500 crore a day, the country’s largest bank would have to pay higher interest rates for three years, even as lending rates on most of its portfolio subsequently dropped to single-digit levels.
Bhatt said that the average cost of funds was around 6 per cent but, post-September, there was high growth in the cost of incremental funds.
“Sixty to seventy per cent of our lending is at below-BPLR rates as the priority sector loans have to be offered at these levels. In addition, loans to corporates are at market rates and we have ourselves dropped interest rates on home, auto and SME (small and medium enterprise) loans to 8 per cent during the first year. So, BPLR is a technicality,” Bhatt said.
Since November, SBI has lowered its BPLR by 150 basis points. He, however, added that banks could lower interest rates by 25-50 basis points over the next six months due to low inflation, low demand for credit and sufficient liquidity in the system.
NPAs under control
Asked about the level of non-performing assets (NPAs) due to the deteriorating economic environment, Bhatt said that, at the end of March 2009, the bank’s bad debts in the domestic loan book would remain at the March 2008 level.
However, with foreign regulators seeking higher provisioning, there could be an increase in the overseas loan book.
What would also help SBI and other banks keep NPA levels steady was the Reserve Bank of India’s decision to have a second round of debt restructuring and allow these loans to be treated as standard assets.
“Both the industry and banks have bought time. If the economy does not improve, then we will have to see how many of the companies come out of it (stress),” the SBI chief said.
Merger of subsidiaries
Bhatt also said that the merger of subsidiaries would depend on the policy of the new government, though most employees at the associate banks were looking forward to a merger with the parent.
He added that SBI was not pursuing overseas acquisitions very keenly. “We are not averse to overseas acquisitions. But unless there is something which offers a strategic fit, we will not look at it very keenly,” he said.
