PSU banks decide not to hike rates

Jaipur/ New Delhi/ Mumbai, July 16: You need not worry about an increase in your equated monthly instalments after RBI’s late night action on Monday. The finance ministry has leaned on public sector banks that control around 70% of the business against raising rates to keep a large constituency of middle class and corporate borrowers pacified ahead of key elections. After all, for over a year now, the finance ministry has been prodding RBI to cut rates, while the central bank has refused to toe the government line. Instead, on Monday it signalled a reversal in policy to offset the impact of the weakening rupee by announcing several measures that will push up the cost of funds for banks.

While there were expectations of banks responding with hikes in the coming days, the finance ministry swung into action and impressed upon banks to maintain status quo.

By evening the impact was visible as banks started issuing statements, saying rates will not go up. “The measures taken by RBI are designed to curb speculation in the market and are not seen by SBI as indicative of any systemic problem or deeper malaise. It is, therefore, expected that the position in the market will stabilize shortly. Hence neither the management nor the board of SBI that met on Tuesday in Mumbai felt that this requires any adjustment of lending,” State Bank of India said in a statement. Taking a cue from the largest lender, others including Punjab National Bank, Bank of Baroda and IDBI Bank followed suit.

Earlier on Tuesday, finance minister P Chidambaram seemed to lay down the ground rule. While kicking off a pre-election campaign on government schemes, Chidambaram said he did not expect banks to raise interest rates. “These measures are intended to quell excessive speculation in the forex market, reduce volatility and stabilize rupee. They should not be read as a prelude to any policy rate changes,” he said. Admitting that the high current account deficit has made the rupee weaker, the finance minister said, “Given the current account deficit and the inflation, some depreciation of the rupee is expected. But sometimes there is excessive speculation in the foreign exchange market and the role of RBI is to ensure that volatility is cut.

The tight liquidity situation due to the recent measures raised concerns of growth being impacted. But the finance minister allayed such fears. “These measures will in no way affect our commitment to growth. We must increase credit delivery and stimulate growth.” He reeled off a number of reforms and initiatives taken by the government in the last four months to revive growth and reverse the policy paralysis that has stalled projects approvals.

No pressure from government to cut rates: Pratip Chaudhuri

Mumbai, September 7: In an interview with ET Now, Pratip Chaudhuri, chairman, SBI, talks about the rationale behind their decision to cut rates as well as credit growth targets and the expected NPA levels in Q2. Edited excerpts:
ET Now: Take us through the rationale behind your decision to cut deposit rate.
Pratip Chaudhuri: Yes. Our deposit growth has been very robust from April 1 to August 31. The deposits have grown by Rs 75,000 crore and the loan growth, including commercial paper, has been only Rs 30,000 crore. Therefore, we thought we will try to restrict and moderate our deposit growth.
ET Now: Are PSU banks cutting rates under pressure from the government even though SBI has been the first to do so?
Pratip Chaudhuri: We don't cut rates because of pressure from the government. PSU banks decide their rates on their own. But while deciding the rate, one has to look at the market and the relative positioning of the bank. We adjust the rate looking at the demand. For example, in our case, we reduced the car and home loan rates thinking that the reduction would allow growth in the loan book for cars and homes.
ET Now: But many banks have revised their credit growth targets in light of low demand. Is there is a similar thought at SBI as well?
Pratip Chaudhuri: These targets are not our own. The targets are largely determined and shaped by the volumes you see. It is very easy to move the credit growth target up, but where are the deposits? Similarly, if you get more deposits and there is not enough traction in the credit market, then you have to calibrate it down. Therefore, it is always a function of demand and supply. And I do not think the individual target-settings by banks are anyway meaningful.
ET Now: What kind of loan growth are you seeing and sectors will drive this demand?
Pratip Chaudhuri: For our bank, the biggest contributor has been the construction sector, particularly the contracting firms and companies which are doing work for state government agencies. Next are the electrical machinery and the power sector which are selling their produce to the distribution companies. These have been the two biggest sectors.
There was some worry on the iron and steel front because there were problems as far as iron ore mining and availability of iron ore is concerned. The iron ore mining situation is becoming slightly better. Therefore, we expect the steel sector's raw material availability to rise and their finances to improve as well.
ET Now: Tell us about your asset quality, especially in terms of the power, iron and steel sectors. Which sectors are likely to be the biggest contributors to your NPA situation?
Pratip Chaudhuri: The levels can be known with some degree of accuracy only by the 20th or 25th of the month following the quarter, but we are working hard to control these levels.
ET Now: What kind of NPA levels are you expecting in Q2?
Pratip Chaudhuri: Restructuring pipeline is not very different from the delinquent pipeline. Therefore, for companies that are under stress but have real value asset and want to borrow against that, we are considering extending the tenure of the loans or making available more loans.
ET Now: What is the extent of restructuring that you are expecting in the second quarter? Tell us what the pipeline is looking like.
Pratip Chaudhuri: Under the SBI Act, the minimum government holding has to be 51%. Therefore, I do not think it is right for me to comment because the government's holding percentage has to be determined by the government. I can only tell you that the government has left no stone unturned in capitalising the public sector banks. Last year, they pumped in about Rs 15,000 to 20,000 crore of equity to keep the pubic sector banks well capitalised.
Therefore, I do not think anybody should doubt the commitment and ability of the government to keep the banks well capitalised. But at the same time it is important that the banks generate sufficiently large internal surpluses.