State Bank of India Chairman O P Bhatt on Sunday said the country's largest lender will take a call on revising interest rates in the second half of the week.
In addition, he said, SBI, which has already extended loans worth Rs 5,000 crore (Rs 50 billion) to help cash-strapped mutual funds, will enhance lending to the sector and to non-banking finance companies (NBFCs). These moves follow the Reserve Bank of India's Saturday decision to allow banks to raise additional resources through the repo window (where RBI lends to banks) to meet the funding needs of NBFCs, which have been facing tight liquidity for the last 45 days.
"SBI has probably been the biggest lender to mutual funds over the last few weeks. We are pumping in money also because we have resources. In the coming days, we intend to provide additional assistance," Bhatt told Business Standard.
The bank has a statutory liquidity ratio - the amount banks must mandatorily invest in government securities - of close to 29 per cent, Bhatt said, adding that it could raise an additional Rs 25,000 crore (Rs 250 billion) or so if it decided to go up to the permissible limit of 25 per cent of net demand time liabilities.
While maintaining that SBI had adequate liquidity, the bank's chairman said that the central bank's moves, which included a reduction in the cash reserve ratio, repo rate and a refinance window along with the intent to buy-back market stabilisation scheme bonds, will improve the overall liquidity in the system.
The reduction in the CRR, or the proportion of deposits that banks set aside, over the past few weeks, will lower the cost by around 25 basis points. The money set aside for meeting the CRR stipulation does not bring in any interest for banks.
Bhatt said that his executives had started calculating the likely impact of the RBI moves on the bank's cost of funds. "It is difficult to take a medium-term or long-term view. We will take a view on interest rates after I return from Delhi," Bhatt said.
Finance Minister P Chidambaram is due to meet public sector bank chiefs Tuesday to assess the situation and discuss the credit growth requirement and capital needs of banks.
Though Bhatt said there was some slowdown in demand in segments like home loans and consumer durables finance, the bank's credit flow is growing at around 31 per cent against the target of 25 per cent for the year.
A part of the increase in demand is being attributed to companies accessing funds from the local markets as liquidity had dried up overseas.
Asked about SBI's overseas operations, Bhatt said that so far, there was no major impact. "We must be among a few banks globally that surplus dollars. But there is more demand even from the regulators as some of them, like in the US, are asking for higher provisioning. During the second quarter, the bank made provisions of around Rs 148 crore (Rs 1.48 billion), some of which was to meet prudential norms.
Despite the crunch, the bank is going ahead with its overseas expansion and has opened three branches in Singapore. The SBI chief said that the bank was trying a new model where back offices in India will cater to the distribution network in Singapore. "You need a balanced approach. We cannot be oblivious to the present situation and at the same time we can also not be oblivious to our future needs," he said.
Bhatt, however, said the bank may face pressure on the quality of assets and flagged small scale industry, textiles, automobile vendors, medium and small real estate players, gems and jewellery and segments of retail loans such as high-value home loans as possible pressure points.
"These are transient blips but I have asked my executives to ensure that we help borrowers wherever possible," he said adding that the bank will restructure loans and make available additional funds, wherever required, to avoid creation of bad debt.
SBI To launch PE fund for core sector
State Bank of India on Sunday said it intends to start a private equity fund of $1 billion to $1.5 billion for infrastructure financing with Australia's Macquarie Group and World Bank's private sector financing arm International Finance Corporation.
Saying there was "no point keeping funds idle", SBI chairman OP Bhatt said the bank was awaiting regulatory clearance.
The three partners signed a joint venture agreement last month to give final shape to a memorandum of understanding signed in April this year. The original plan was to operationalise the fund, which will eventually have a corpus of $2 billion, by the end of the second quarter.
In recent weeks, players like Reliance Capital and LIC Housing Finance, which had planned PE funds, said that they would kick off operations with smaller funds because fund raising was not easy.