Immediate RBI rate cut unlikely: SBI chief

With inflation at uncomfortable levels, the Reserve Bank of India (RBI) is unlikely to opt for a rate cut in Friday’s mid-quarter monetary policy review, growth slippage notwithstanding, State Bank of India (SBI) Chairman, Pratip Chaudhuri, said today.

“I do not think so (that RBI would cut rates) because food inflation has to come down significantly and steadily...at that rate (9.11 per cent WPI inflation), I don’t think RBI would take a view that inflation and inflationary expectations have been controlled,” he said at a conference on economic policies for emerging economies here.

Most market participants expect RBI to hold its repo rate, the interest rate at which it lends to banks under the liquidity adjustment facility, on Friday.

Chaudhuri doesn’t expect the central bank to cut the cash reserve ratio either, as the move would be seen as contradictory to its anti-inflationary stance. Many market participants expect RBI to cut the cash reserve ratio to ease the liquidity situation in the banking sector, especially due to the payment of the third tranche of advance tax by companies.

The bank, India’s largest commercial lender, has raised its net interest margins target for the current year to 3.70-3.75 per cent, Chaudhuri said. “It (earnings) has been very good. Our net interest earnings are very robust. I had given a guidance of 3.65 per cent, and we expect it to further better it. We are now raising the guidance to 3.75 per cent for the whole year,” he said. The bank’s net interest margin had increased by 42 basis points to 4.04 per cent in July-September from 3.62 per cent in the previous quarter.

Chaudhuri said the level of bank’s non-performing assets (NPAs) had stabilised. “I don’t want net NPAs to go down further from here. We are at 2.04 per cent. So, we would like to continue at that,” he said. On a net basis, the bank’s bad loans had increased to 2.04 per cent in July-September from 1.70 per cent a year ago. The bank’s profits would be “reasonably good”, he said. The bank’s profit in January-March had fallen drastically due to a huge rise in provisioning. It, however, rose 12 per cent year-on-year in July-September.

The government may infuse Rs 30,00-4,000 crore into the bank by March, Chaudhuri said. “It (capital infusion) is around the corner. It could happen any day now….(the mode of fund infusion) is not decided. But whatever we are getting, we will be getting cash,” he said, adding the government’s stake in the bank after an infusion of Rs 3,000 crore would rise three per cent.

Chaudhuri said he expected SBI’s Tier-I capital to be around nine per cent by March. All banks need to raise their Tier-I capital to nine per cent to meet Basel III norms. The government would need to pump money into state-owned banks to maintain its stake. SBI was originally scheduled to raise Rs 20,000 crore through a rights issue.