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MUMBAI: Pratip Chaudhuri's tenure as SBI chairman has been one of extremes. The bank recorded its highest ever profit of Rs 14,105 crore, but this was marred by a surge in bad loans. The sell-off in bank stocks resulted in SBI losing its position as the most valuable bank but Chaudhuri reaffirmed its fundamentally strong image by bolstering Tier-I capital adequacy to well over 9% and providing for pension liabilities. Excerpts from an interview with TOI:
SBI has tightened income criteria for car loans. Will you do this for all retail loans?
We have done this for auto loans as we feel that those with higher income are less likely to default. Home loans are different because it is against property and it also enhances the borrower's income through rentals or savings in rent. Education loans will become a problem if, going forward, the economy does not grow at 6% as enough jobs won't be created and also employment would come at lower salaries. That is why we have extended the tenure of our education loan from five to twelve years. We hope the government brings in the guarantee scheme for education loans.
What do you expect from RBI's mid-term policy review on Friday?
We have made three recommendations: A 1% reduction in cash reserve ratio (CRR), allow 2% interest on current account deposits and permission to raise three-day bank deposits. Today, there is no difference in return if money is maintained in cash or in current accounts. Given that close to Rs 11 lakh crore is in the form of currency with the public, the endeavour should be to encourage flow of the cash into the banking system.
Why have stocks of SBI and other public sector banks fallen so sharply?
Not just banks, there is a huge element of short-selling that goes on in public sector stocks. If you look at the price of ONGC, Sail, Coal India, NMDC, NTPC — all have taken a beating of 30-40%. Short-sellers get away with impunity as they feel there is not enough interest to defend these stocks. Whereas if someone were to short-sell companies where promoters have sizeable holdings, there is fear that if these people come and start buying then they would be caught on the wrong foot.
RBI has allowed banks to swap NRI deposits for rupee funds at low cost. How much do you plan to raise?
We lend the funds we raise through foreign currency non-resident (FCNR-B) deposits to companies in the form of dollar loans, for which there is very good demand. If we convert FCNR-B into rupees, we will not have resources for dollar loans. Also, the blended cost of rupee funds would come to around 8% which is higher than SBI's indigenously procured funds. For SBI, this does not make much economic sense.
Why is liquidity so tight? Why is bank credit growing despite the slowdown?
We are also experiencing the tightness. I don't know if it is temporary but it is indicative of the highly inverse yield curve. RBI's cut-off yields on bonds are so high, primary dealers find it attractive to borrow from RBI at 10.25% and buy bonds at 11-11.5%. Bank credit is growing because companies have shifted their borrowing from commercial paper and from short-term external commercial borrowings to rupee loans since other sources are unavailable. Also, deposit growth is quite muted, which is why we are offering 9% on our fixed deposits. We don't see any upward pressure on lending rates as our margins have moved up by two basis points in each of the last two months. But our lending rates are always kept under the scanner.
http://timesofindia.indiatimes.com/business/india-business/Education-loans-a-problem-at-sub-6-growth/articleshow/22677858.cms
SBI has tightened income criteria for car loans. Will you do this for all retail loans?
We have done this for auto loans as we feel that those with higher income are less likely to default. Home loans are different because it is against property and it also enhances the borrower's income through rentals or savings in rent. Education loans will become a problem if, going forward, the economy does not grow at 6% as enough jobs won't be created and also employment would come at lower salaries. That is why we have extended the tenure of our education loan from five to twelve years. We hope the government brings in the guarantee scheme for education loans.
What do you expect from RBI's mid-term policy review on Friday?
We have made three recommendations: A 1% reduction in cash reserve ratio (CRR), allow 2% interest on current account deposits and permission to raise three-day bank deposits. Today, there is no difference in return if money is maintained in cash or in current accounts. Given that close to Rs 11 lakh crore is in the form of currency with the public, the endeavour should be to encourage flow of the cash into the banking system.
Why have stocks of SBI and other public sector banks fallen so sharply?
Not just banks, there is a huge element of short-selling that goes on in public sector stocks. If you look at the price of ONGC, Sail, Coal India, NMDC, NTPC — all have taken a beating of 30-40%. Short-sellers get away with impunity as they feel there is not enough interest to defend these stocks. Whereas if someone were to short-sell companies where promoters have sizeable holdings, there is fear that if these people come and start buying then they would be caught on the wrong foot.
RBI has allowed banks to swap NRI deposits for rupee funds at low cost. How much do you plan to raise?
We lend the funds we raise through foreign currency non-resident (FCNR-B) deposits to companies in the form of dollar loans, for which there is very good demand. If we convert FCNR-B into rupees, we will not have resources for dollar loans. Also, the blended cost of rupee funds would come to around 8% which is higher than SBI's indigenously procured funds. For SBI, this does not make much economic sense.
Why is liquidity so tight? Why is bank credit growing despite the slowdown?
We are also experiencing the tightness. I don't know if it is temporary but it is indicative of the highly inverse yield curve. RBI's cut-off yields on bonds are so high, primary dealers find it attractive to borrow from RBI at 10.25% and buy bonds at 11-11.5%. Bank credit is growing because companies have shifted their borrowing from commercial paper and from short-term external commercial borrowings to rupee loans since other sources are unavailable. Also, deposit growth is quite muted, which is why we are offering 9% on our fixed deposits. We don't see any upward pressure on lending rates as our margins have moved up by two basis points in each of the last two months. But our lending rates are always kept under the scanner.
http://timesofindia.indiatimes.com/business/india-business/Education-loans-a-problem-at-sub-6-growth/articleshow/22677858.cms
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