Speaking on the sidelines of a formal launch of SBI's international banking unit (IBU) at the International Financial Services Centre (IFSC) at GIFT City, Bhattacharya said, “The rate for deposits have not fallen very much as deposits growth in the banking system has not been as robust as it should be. However, deposits growth is now looking better, maybe on the back of Seventh Pay Commission and a good monsoon. We are expecting deposits growth to go up. When that happens we will automatically be able to reduce on the deposits side.” On the repayments side, she said, “The second reason is provisions for NPAs (non-performing assets), which is a huge burden. As you see more NPAs getting resolved, banks will have more space to bring deposits rates down. Banks are doing their best to see rates come down. We understand that to support the economy it is important to have lower rates, but in the end we have to balance it.”
Bhattacharya said NPAs would start coming down once demand returns to the economy. “NPAs will start coming down as demand comes back into the economy and you see more and more capacity utilisation. Today, capacity utilisation is still sub-optimal. If you look at road, manufacturing units and power plants, most of these are running at 60-65 per cent capacity. When you see them coming up to 80-85 per cent you will definitely see NPAs trending down,” she said.
The bank sees a fall in interest rates if the recent retail inflation numbers are anything to go by.
According to Bhattacharya, the interest rate regime was expected to be accommodative even as demand goes up in the economy and credit growth comes back, leading to more competition.
The other reason for likely lowering of rates was improved liquidity among banks. "Till last year, there was a very big liquidity squeeze. As a result, bond deals were not falling. This year, the central bank has changed its stance, so bond deals are also falling. Therefore, we have some upside on the treasury as well. All of these will help in bringing down interest rates," she said. On the merger of its associate banks, she said it was being driven by growing competition from new banks as well as non-banking financial companies (NBFCs). "Merger of associate banks is essential because banking is evolving at a very fast rate. You have not only competition from new banks but also from non-banks. If you have seen the growth of NBFCs into finance, it is very important for banks to evolve quickly to bring the right kind of risk matrix and the technology to sustain profitable growth. It is difficult to do this in small organisations because they do not have the strength or capital to expend on these kinds of activities. Therefore, it is important for us to consolidate so that we have the strength to face this competition," Bhattacharya added.
Talking about the additional tier-1 (AT-1) bonds, the chairperson said, "We did $300 million worth AT-1 bonds in the international space and Rs 2,000 crore in the domestic space. More bonds will happen in tranches."
Meanwhile, talking about the possibility of another IFSC in the country, Bhattacharya said, "There is scope for two IFSCs. India is aiming at growing exponentially. If we are going to be a major economy by 2025 or 2050, then there is scope for more than one IFSC in the country." SBI, which has around $50 billion of international business, will provide services like trade credit, loans in foreign currencies, derivative transactions, reinsurance, and commodity capital raising, among others from the IFSC at GIFT City.
Formally launching the IBU at the IFSC, which falls within the special economic zone (SEZ) in GIFT City, Bhattacharya said the bank conducted a $2-million trade credit transaction between a Vietnamese exporter and an Indian importer, without revealing further details.