Banks will wait for next qtr to see if deposit rates can be cut: C S Setty

He said the asset liability committee of the bank will meet this week and the external benchmark linked loans would be reduced from this month itself

The Reserve Bank of India (RBI) has cut the policy repo rate (by 25 basis points to 6.25 per cent) after a gap of almost five years. State Bank of India Chairman C S SETTY tells Manojit Saha in a telephonic interview that the country’s largest lender’s asset liability panel will meet this week and external benchmark-linked loans would be reduced this month itself. Edited excerpts:    After the repo rate cut, lending rates linked to an external benchmark, or EBLR, are expected to decline. Twenty-eight per cent of SBI’s loan book is linked to repo rate. When do you think the cut on EBLR-linked loans will be effective? 

We will have an ALCO (asset-liability committee) meeting this week. From this month itself, it will be effective.

 

What do you think about the marginal cost of funds-based lending rate (MCLR)? 

The MCLR reduction will depend on the cost of resources, the marginal cost of funds. If we reduce the deposit rates, only MCLR softening will happen.

  When do you think deposit rates would be reduced?

  My view is that most banks will probably not immediately cut rates on the deposit side. They may wait for this quarter to be over. This is a busy quarter for everyone. Credit growth is also good in this last quarter. For that, they definitely need deposits also. My view is that a few banks may take a call but most banks will wait for the next quarter to see if they want to cut deposits. Then only the MCLR movement will happen. 

 

What kind of softening in deposit rates do you see in the next financial year?

  Our house view is 75 basis points policy repo rate cut in the next 12 months. That’s the view of our economic research department. As long as it is a 25 bps reduction, it will not be immediately passed on to depositors. But if rate cuts become frequent and deeper, we need to ensure policy rate transmission happens. If deposit rates are not recalibrated, policy rate transmission will not happen. And you cannot recalibrate the MCLR also. These are all interlinked. But this particular rate cut may not lead to a deposit rate cut immediately.

 

SBI’s net interest margin from domestic operations was 3.15 per cent in Q3. Do you think net interest margins would come under pressure in this quarter due to the repo rate cut?

  If this kind of shallow rate cuts are there, I think we could manage the margins. We will probably be able to protect it.

 

During the policy announcement, the RBI observed that banks are reluctant to lend in the call money market. What are your views on this?

  This is not applicable to SBI. We are active participants in the call money market. It is an unsecured one [lending in call money market]. If somebody has security, they will try to borrow from TREPS [Tri-party Repo Dealing System] and CROMS [Clearcorp Repo Order Matching System]. Secured borrowing is cheaper than unsecured borrowing. Policy rate transmission happens through call money rate, because policy rates are all short term.   

The RBI also deferred the Liquidity Coverage Ratio norms, which were proposed to be implemented from April 1 in the draft circular. How do you see this development?

  The overhang which was there…that is when this was going to be implemented... that has clarified very clearly that is not going to happen before April 2026. That is a big clarity. This is definitely a positive. We have given recommendations on what needs to be done if these LCR norms are implemented. For the time being, it is a great relief for the banks.