We're banking on loan growth to make up for hit on income: Arundhati Bhattacharya

Interview with chairman, State Bank of India

State Bank of India (SBI) Chairman Arundhati Bhattacharya says the rate cut will reduce the stress on customers and help the bank reduce its provisioning bill. She spoke to Abhijit Lele shortly after the bank announced a surprise 15-basis point base rate cut. Edited excerpts:

After the Reserve Bank of India (RBI) policy announcement, you had indicated there would be no immediate lending rate cut. What made you change the stance by the evening?

The bank has been consistently saying it would reduce lending rates when the cost of funds decline. There is some saving (reduced cost of funds) from the cut in deposit rates in the previous financial year (2014-15).

What effect would it have on SBI's income?

It will impact income but it's better to do it at the beginning of the financial year. We hope to make up the loss through increase in volume growth in loans. The improvement in economic activity and business confidence should help us achieve that.

In what way would it address the problem of bad loans in the system?

It will reduce stress on customers, as they pay less in the form of equated monthly instalments. Our credit costs will also go down, as we have to make lesser provision for non-performing loans.

With the banking system in an easing rate cycle, will SBI reduce rates further?

We will observe the effects on interest margins. If net interest margins improve, the bank can look at it.

What has been the bank's credit growth in 2014-15?

The loan book has grown by less than 10 per cent in FY15. It is partly an outcome of a conscious decision to consolidate. The bank has cleaned up its books and also sold assets to asset reconstruction companies. This year should be different because of expected improvement in economic activity.