HDFC Bk cuts rates, dares to outdo system on credit growth

Written By Unknown on Selasa, 07 April 2015 | 23.25

HDFC Bank , India's second-largest private lender in terms of asset size followed  SBI's footsteps in cutting lending rates by an equivalent 0.15 percent to 9.85 percent, effective April 13.

Paresh Sukthankar, executive director, HDFC Bank does not see this marginal cut in lending rates boosting credit growth significantly. In an interview to CNBC-TV18, Sukthankar said the bank is, however, well positioned to do better than the system on credit growth front.

Answering a query if margins for the bank now would be a shade lower in Q1FY16, he said "Will maintain the current levels of net interest margins."

Below is the transcript of Paresh Sukhtankar's interview with CNBC-TV18's Shereen Bhan and Latha Venkatesh

Shereen: State Bank of India (SBI) took the lead and you followed suit. This afternoon when conversations were happening at the Reserve Bank headquarters there was an ambivalence on whether or not we would see the banks move but finally this evening the Governor's words or powers of persuasion certainly seemed to have worked?

A: There are two elements which sort of enabled this. One, you first needed to get deposit rates to come off and that in turn would enable the dropping of the base rate. Second, we have always been on a marginal deposit rate calculation for the base rate. So, having dropped key deposit rate from 8.75 percent to 8.5 percent for one-year deposits and then recalibrating the base rate as per the formula that we already had, we found that there was room to reduce the base rate which is what we have gone ahead and done.

Latha: Does this impact margins, will the margins in the first quarter of the current year be a shade less than what it was in the fourth quarter for most banks who will follow suit?

A: Actually if you really look at the way the base rate calculation works, which is where you start off with a different deposit rate and arguably there is a lead and lag between the new deposits coming in as new rate obviously coming for new deposits and renewals, one could argue that there would be some impact.

However, from our point of view if you look at the range in which we have had our net interest margins (NIM) for the last several years we have been in a fairly tight range and within that range there could be movements in either direction but we don't really see any trend in margins in any direction at all. We will remains in the range that we have traditionally been in.

Latha: Arundhati Bhattacharya told us two things, one that she is already moving from 8.5 percent to 8.25 percent for the one-year deposit rates. So, do you think that further cuts in deposit rates are imminent for your bank as well and two, she said she expects to make up in volume what she loses in margins - that the lower rates will prod more borrowing, your response to both?

A: Changes in deposit rates, everybody likes to move in baby steps. We have moved a few months back from 9 percent to 8.75 percent and this time we have moved from 8.75 percent to 8.50 percent. Whether there is room for further deposit rates reduction is going to be a function of what the general market does in terms of deposit rates and also the flow of deposits that we see as a bank.

It will be premature having just done a rate cut to try and anticipate when the next rate cut would be on the deposit side. Is it generally possible given the expected direction of rates; is there some more room to potentially drop rates? May be but it is too early. We will have to digest what has just been done before we take the next step.

Latha: Credit growth?

A: In terms of credit growth, we have traditionally remained comfortable with looking to grow a little faster than the system and I think we remain positioned for that. I don't think the marginal change which we have seen in rates itself is going to be a huge figure to change the credit growth number.

However, despite the somewhat muted system growth I think we remain positioned to grow little faster than that which is what we have traditionally done.

Latha: The range of small savings Indira Vikas Patra, Kisan Vikas Patra (KVP), Public Provident Fund (PPF) are all at 8.75. That doesn't deter for the fallen deposits, does it?

A: By and large one could argue that there is some impact. The reality is that a larger portion of bank deposits as you are aware tend to be of shorter tenures than most of these instruments which you have spoken about.

So it is a fact that at the longer end clearly the retail depositor will be enticed with a slightly higher returns that they get on the instruments you mentioned but clearly the liquidity, the fact that a lot of retail depositors do look for shorter tenures means that there will be a section of depositors who would be happy to place deposits quarter percent less but with the flexibility which comes with bank deposits.


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