SBI may not cut lending rates soon: Chairman

Mumbai: In an interview to CNBC-TV18, Pratip Chaudhuri, chairman of SBI says, the bank is not looking at cutting base rate in the near-term. "Our current base rate is one of lowest in the industry. So, rather than cutting the base rate, we have been trying to drop the spreads for many of our customers," he adds.

Below is the transcript of his interview on CNBC-TV18:

Q: Why the decision to hold the base rate, at a time, when many of your peer banks have cut the base rate by at least 25 basis points?

A: Our base rate is already one of the lowest in the industry. We are at 10 per cent and 10.75 per cent is where others are coming from. So, even if they will drop the base rates to 10.5 per cent, we are still a good 50 basis points lower than that.

Secondly, base rate does a transmission equally among all the loan borrowers. We don't want that to happen more than that because our home loan rates are already at a rock bottom of 10.29 per cent. But in several segments, especially in the SME, our rates are in some parts at 15-16 per cent. So, we want to bring them down to more reasonable levels at 13.5 per cent and 14 per cent. So, rather than doing the base rate, we have been trying to drop the spreads for many of our customers.

Q: In terms of a time line will you not cut the base rates at all in the near-term or have you just deferred it for the time being?

A: Deposit is a different metric, that is 0.5 per cent cut.

Q: On the base rate?

A: The Asset-Liability Committee (ALCO) decision in the previous meeting was not to cut it because base rate wise we are already at the lowest end.

Q: Can you take us through which of the lending segments specifically will you not look at any reductions at all? Would it be real estate, manufacturing, infrastructure, which of these areas will be untouched by any kind of rate cuts?

A: Untouched would be home loans.

Q: Only that?

A: Others, depending on where they are, there would be cuts for almost everybody.

Q: Can you also clarify to us on which loans you have gone ahead and cut the lending rates up until now?

A: That is auto loan because already. The EMIs are down. The effective rate is down to 11.25 per cent from 12 per cent.

Q: Why the transmission of what the Reserve Bank has been cutting first the CRR and the repo rate cut is incomplete for most of the banking sector, nobody is passing down 50 basis points or more? Why is that the case, can you explain that?

A: I can't speak for others. But base rate cut does not mean a significant cut in cost of deposits because last time the Reserve Bank had increased the repo rate thrice, but you never asked me why we are not increasing the base rate. But the transmission effect of CRR is what we are now rolling out. CRR transmission effect we would have rolled out earlier, but since the month of March was very challenging in terms of liquidity we are rolling it out now.

Q: Is there more headroom to cut deposit rates further?

A: It looks difficult because we need to remain atleast 25 basis points higher than the post office rates. If the banks deposit rates go lower than the post office rate then I am afraid there would be a reverse flow of bank deposits into the governments' savings scheme. Already the banks have suffered in the last quarter very sizably when several companies positioned their tax free bonds at 8 per cent plus.

Now, in order to meet a return of 8 per cent plus post that, you need to have deposit rates at 11 per cent. Rs 150,000 crore has gone out of banking system into the fixed maturity plans of the mutual funds. So, it is not that there is no competition. If we become uncompetitive in terms of returns, the very act of getting more deposits would prove to be very difficult.

Q: I just want to ask you about this important distinction that you made between the CRR and the repo rate. Are you then signaling back to the Reserve Bank of India, the country's largest bank, that you will respond to CRR cuts, but not necessarily to repo cut? Why is the Reserve Bank cutting repo if you are not picking it up as a signal to cut rates? It's meaningless then the Reserve Bank should only be resorting to CRR cuts.

A: No, I am not saying that, repo has a signaling rate.

Q: You are not picking up that signal?

A: But in terms of cost it is not as significant an impact as the CRR is. Reserve Bank has released 0.75 per cent in CRR. So this money, which was not earning any interest, now starts earning interest at about 8 or 9 per cent. So, I would be very justified in passing it down.

Repo, my total borrowings are Rs 15,000 crore. Now, on Rs 15,000 crore if there is a 0.5 per cent rate cut, it amounts to Rs 75 crore per year for a bank like our size. Now how do you transmit Rs 75 crore to different segment of borrowers, when our net interest income is Rs 41,000 crore.

Q: So, basically you are telling the Reserve Bank of India that if you want me to cut rates and pass it down, you have to lower the CRR. Don't lower the repo rate, right?

A: CRR cut augments the supply. When there is more supply then the prices have to drop. That happens in any market. So, CRR cut transmission for us is very easy. Repo rate cut maybe a signal, but it doesn't have an immediate impact on the banks bottom line.

Q: Can we generalise this for the entire sector because generally when SBI starts with a rate cuts, the other PSU banks follow suit?

A: I can't speak for others. But PSU banks had raised the base rate sharply, which we didn't. There base rates are coming down from 10.75 per cent. Even now most of them are at 10.5 per cent, we are already at 10 per cent.

Q: One final question on the point you made that you have limited elbow room to cut deposit rates further, given the comparative landscape of interest bearing instruments. If that is the case, do you think the prospects of cutting lending rates or passing down any further lending rates, given your cost structure are very limited for the next few months?

A: That will depend how the CRR moves and at what end we get deposit. If we get deposits at the short end then it should be possible to lower cost. It would be possible to pass on. So from time to time the ALCO reviews the net interest margin position and take a call.