Diwakar Gupta, managing director and chief finance officer, SBI, discuss the impact of the RBI’s decision with NDTV Profit’s Ira Dugal. He said he was not expecting the bank to take such an action. “A cut in SLR would not create a major impact but it will provide us cushion,” he added.
Below is the complete interview. Also watch the accompanying video.
- Q: The RBI has given you 1 per cent additional rebate on your SLR...
- A: It holds no surprises. We were not really expecting the Reserve Bank to take any action. The SLR has been cut by a percentage point and for those of us who want to seek an answer, it was there in the RBI governor's address itself that with fiscal deficit being what it is and there are chances of it going over, there is going to be a crowding out of new investment and therefore, liquidity needs to be maintained. So, credit offtake should happen so the players are not hampered. And that’s the question that we have got in terms of that 1 per cent SLR rebate.
- Q: What is SBI's SLR holding right now?
- A: We also hold around 3 per cent in addition to the statutory requirement.
- Q: So it may not really help right now? If you all are already holding above the stipulated level, there is probably no real impact then?
- A: That's right. There is no real impact but it is a kind of cushion, a comfort.
- Q: Why are banks holding on to this excess SLR? Is it because there is no credit demand?
- A: The demand is definitely muted. If you go item by item, whether it is home loan, car loan or even in the infrastructure space, the demand has been lower year-on-year. On the project side, a very few deals are in the pipeline. The banks are also experiencing stress and in such times, banks also get a little careful while dispensing credit. So, I think it is a combination of all those factors. But the deposit gathering has been faster for us than advances off take.
- Q: Is that the only way we will see credit flow into the productive sector?
- A: I would think that it is really a game changer. There would be players but that investment decision is not forthcoming. I think some more clarity; some more improvement in the environment is what most players are looking for. I think the fundamentals of the economy need to look better and demand will come back.
- But if the liquidity situation remains relatively easy right now, do you think there is any scope for the rates to come down just at the bank level?
- I think the time window in which we are observing this phenomenon is very short. But in the normal course, around three months, liquidity continues to be comfortable and deposit gathering continues to overtake credit offtake. I’m sure there will be some softening in the deposit rates, which augurs well for rates to come down in the system in general.
- Bond deals would go up, will there be an upward pressure from the treasury perspective?
- Because of the cut, the government securities would be less in demand. I think the price is reflecting that movement in a very short term just as you see movements in the equity markets. I don’t think we need to read very much into this movement in terms of a long-term trend.
- How have things shaped up in the last three months...are things starting to look worse?
- To make a very honest assessment of the last three months, I think things have not improved. I think they have gone worse marginally for a simple reason that stress on assets has continued being there. It is expected, given that the rates are a bit elevated and the global economy has slowed down. Commodity prices have come down but that's not going to be the situation for the long term. The global economy has to revive. Brent is at $105 per barrel. So, the scenario is little worse than it was three months ago.