Speaking to CNBC-TV18 regarding the Reserve Bank's move on Monday , Mundra says the liquidity ease does not indicate a long-term change in the central bank's policy stance given the high wholesale price inflation, consumer price inflation and the repo rate hike.
Below is the verbatim transcript of SS Mundra's interview on CNBC-TV18
Q: What is your first reaction to the move from the Reserve Bank of India (RBI)? Do you think it is a bit of a near-term relief or are you sensing some kind of policy reversal?
A: On the face, it may look quite contradictory that very recently there had been a liquidity tightening and the repo rate hike and on the back of that coming this. But it is more consistent with the first announcement that the governor had done. He mentioned that once there is stability in the exchange market, eventually he would like to bring the marginal standing facility (MSF) to the original level and stabilise the corridor.
The pronouncement implications for this will be, firstly, now there is a fairly good amount of stability in the exchange market and the liquidity curtailing extreme measures which were taken, they had fallout on the short-term money market. The rates had almost shot up by 300 bps and as a result the liquidity became an issue.
The cost of resources, deposit, everything particularly at the short end of the yield curve got affected this way. Now with this, the yield curve which became quite inverse, will be a more normalised yield curve.
Secondly, liquidity in the system would be better and some of the demand pressure that came to the banking system from the corporate side can go back to the market. This will reduce the dependability of banks for this bulk deposit or the higher amount of fund from the market would be able to realign the deposit rate. Once all this happens and it is also onset of the busy seasons and the festive season, I think bank would be able to move back to the original constancy and should be able to offer some relief in interest rate to a particular segment.
But if I look at the wholesale price index (WPI), consumer price index (CPI) and also the repo rate hike which has happened, I still do not see it as an indication of any long-term change in the policy stance, but the mismatches that had come at the short-end get corrected and achieve several purposes with one dissection.
Q: For BoB will there be any incremental benefit on account of this 50 bps cut in MSF? What portion of your portfolio comes from the wholesale funded route?
A: Wholesale funding route has two things, wholesale funding by way of customer deposit and wholesale funding from the market per se. As far as market per se is concerned, BoB had been a lender all along and so, there is no direct sourcing from the market. But if short-end yield curve had shot up then the deposit rates on the bulk segment also moves up to that extent. So once this gets realigned, cost of those deposits will come down, to that extent we will get benefited as the maturity keeps on coming, but not directly from the market borrowing per se. We have a very healthy ratio of mix between the retail and so called bulk. Even if I take very pure definition of retail below Rs 1 crore, more than 55 percent of our deposits come from this segment.
Q: What about credit growth? How is that shaping up? For the full year what will be your estimate?
A: So far, credit growth has been as per our expectation and the guidance which we were mentioning, even for the half year ended September the credit growth is almost nearing 18 percent on year-on-year basis. As we move further in the year, the guidance that we gave since the beginning of the year, I think 17-18 percent credit growth this year for BOB should be quite feasible.
Q: Just a few days back one of your peers Punjab National Bank (PNB) had indicated that they could cut loans to consumer durables by about 6200 bps. Is there any such plan for BoB? If yes, by how much?
A: As far as this particular segment is concerned, BoB does not have much presence in this segment and as we do not have much ecosystem to address to this particular segment of the client, I do not expect much action in this particular segment. But in few other segments with all these changes and the cost of funding coming down and during this traditionally busy season, we may be able to pass on benefit to the select segment of customers.
Q: With respect to the total budget of Rs 14,000 crore which will be allocated in FY14 for recapitalisation, how much will come to BoB and how soon?
A: How can I say how much will come and when it will come, but as the indications are we have put in what we would expect. It will finally depend on the allocation, but the recent indication given by the ministry may happen in next month or so. We were expecting a capital infusion of something like Rs 1,400-1,500 crore, this is what we had put on our demand and so, let us now see what allocation comes.
The capital adequacy of BOB is quite strong, one of the best in the peer group. At the last count in June, we had the capital adequacy of 12.70. We also had room available for even raising capital under the tier-1 and the tier-2 instrument. Whatever combination of capital we put in place, I do not think capital is going to be a constraint for our business plan as of now.
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