SBI is playing catch-up

State Bank of India, announced a large hike in its base rates today. The figure went up 75 bps from 8.5% to 9.25% per annum. Diwakar Gupta, CFO, SBI, told CNBC-TV18 that the bank is compensating for a sluggish rise in the past. In spite of the number being large, they still compare among peers as having low rates, he said. While this move translates as loans being more expensive to the customer, it puts a question mark on the ability of the bank to continue its momentum in raising its loan book. Gupta agrees that servicing liability is bound to increase with the rate hike and says that credit growth will moderate, going forward, especially in the retail segment. He, however, sees margins neutralising in the short-term. NIMs are likely to be disturbed only if a liquidity crunch happens and deposit rates need to be raised, he said.

Q: It is a big move 75 bps, why did the SBI need to do that larger a move?
A: If you notice, even after this rise of 75 bps, our base rates are at the lowest level amongst peer banks. So you can say that partly we are compensating for a sluggish rise in the past. In any case rates are refixed looking at the entire portfolio, in account, also looking at the next three-six months. Also see: SBI hikes lending rates by 75 bps

Q: With rates at such high levels, what impact do you see it having on your loan growth for the rest of the year and also could it impair asset quality down the line?
A: That is a moot point and there is no doubt that servicing liability will rise because of this rise in rates. Now, our underwriting standards are reasonably conservative. So, we don’t expect the deterioration in the portfolio but going forward credit growth definitely would moderate especially in the retail segment.

Q: Can you just walk us through the quantum of increases on the deposit rate side both on the shorter tenures and the longer ones?
A: We haven’t touched any beyond 180 days, but in the 7-14, the 15-45 and the 46-90 segments, we have made the rate 6.25%. At the 91-180 segment, the rate has been raised by 1 percentage point from 6% to 7%. Now, the rationale for doing it is to reward the fixed tenure better than the savings bank. And this is also going to help in managing any liquidity imbalances that may occur in the short-term.

Q: You have indicated earlier in this conversation that SBI, probably, has a little more of catch up to do than other banks, how much more would you say SBI would need to increase even in the course of this calendar year?
A: That is very difficult to predict at this moment because it will depend on how the overall macroeconomic scenario unfolds. So you could have inflation, which is not getting into control, leading the Central Bank to raise rates aggressively, or in the alternative, it could moderate. I think we will have to take a view depending on how that situation develops.

Q: What kind of margin implication does this rise come with, does it cushion for any kind of margin pressures that you are witnessing or do you see NIMs coming under pressure for the next two-three quarters?
A: If there is a liquidity crunch and deposit rates need to rise, then there could be pressures in margin. As of now, I think it is broadly neutralizing whatever margin pressure we could have witnessed.