SBI eyes CRR cut along with repo to pass on benefits

 

SBI eyes CRR cut along with repo to pass on benefits
Ahead of the Reserve Bank of India's monetary policy review on March 19, Diwakar Gupta, MD & CFO of State Bank of India   wants a repo as well as a cash reserve ratio (CRR) cut. He further added that the market is expecting the central bank to ease repo rates by 25 basis points. It will help improve sentiment more than cost reduction, he noted. According to him, CRR cut will lead to immediate pass through in lending rates.
"Consensus is building around the fact that most likely we will have a 25 bps cut on the repo rate. We would love to see some CRR cut as well because that is what gets transmitted immediately in terms of rates. A repo rate cut only is a signal and banks have to wait for it to translate into a P&L effect before they can transmit the effect of that," explained Gupta.

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Gupta also said that KYC issues still persist with some private sector lenders and he does not expect the RBI to address recent allegations about banking frauds tomorrow, during the policy meet.  However, the central bank may take administrative measures to address KYC concerns and to curb any untoward incident. He also mentioned that KYC guidelines at the moment are quite stringent and operational failure is leading to problems associated with it.

Besides weak growth is reflecting in the bank's credit demand as well as asset quality, informed Gupta. As far as the seizure of Kingfisher Airlines' assets are concerned, he told CNBC-TV18 that bankers are proceeding with it.

Here is the edited transcript of the interview on CNBC-TV18.

Q: A word on what the State Bank of India (SBI) expects to see from the Reserve Bank of India (RBI) in terms of whether policy cuts will come through?

A: We have a wish list and that wish list is both repo and Cash Reserve Ratio (CRR) cut. Consensus is building around the fact that most likely we will have a 25 bps cut on the repo rate. We would love to see some CRR cut as well because that is what gets transmitted immediately in terms of rates. A repo rate cut only is a signal and banks have to wait for it to translate into a P&L effect before they can transmit the effect of that.

Q: What would transmission be like? Post-January when you got both a repo and a CRR while rates did come off in specific segments like cars and consumers, overall the Benchmark Prime Lending Rate (BPLR) came off only 5 bps or so. Would SBI be looking at transmitting any cut only selectively across segments or across the board?

A: SBI has already done very significant cuts in specific segments. My sense is that we would really be looking to cut the base rate itself by way of transmission, but how the calculation works is that last time around 25 bps CRR cut released about Rs 2,800 crore for us and that is an earnings opportunity of about Rs 300 crore.

A 5 bps base rate cut is exactly that amount of interest foregone. So the transmission was complete, but since we are not comparing apples with apples a 25 bps cut on repo does not translate into a 25 bps cut in the base rate.

Q: You have been in the sector for so many decades. Were you alarmed at the revelations which came through last week on some private sector banks or would you say that these things are known to bankers like you and you know that some of these things happen without the regulator being in the know?


AMIT KUMAR SINGH
PGDM 2ND SEM