Ashwani Kumar, chairman and managing director, Dena Bank, feels that the rally in bond prices will impact banks' profitability. He spoke to Anurag Shah on non-performing assets, S4A rules and host of issues. Excerpts from the interview:
The interest rate cut indicates that both inflation and growth were taken into account. Banks are a part of the entire financial sector. We have to align our rate of interest according to growth in other areas. As the government had cut rates in small savings, banks are encouraged to cut rates further we have to align it with them.
CRR is now 4% on which banks do not earn interest. If there is interest we can earn on it and can pass on the benefits to depositors. But, CRR is one of the RBI's tools fo liquidity management. If there is a reduction in CRR, then the interest rates can be passed on faster.
I cannot comment specifically due to quarterly results period. But slowly and steadily this stress is reducing. But how it will impact Q2, it depends on a bank’s individual portfolio. In general, I think, the impact will last for a quarter or more.
The rally in the bond prices will definitely impact banks' profitability. Most banks must have booked profits. It's a good time where you can see profit from bonds. Banks that require more provisioning can use this profit for addition provisioning.
When the scheme was launched 3-4 months ago, the issue was of sustainable and unsustainable debt. Now the sustainable portion would be considered as standard, it would be a big relief for the banks. It would reduce the amount under NPAs. And secondly, there would be a reduction in provisioning too. So it a good step, but there are not many accounts under S4A. Banks are working on it.
Any decision taken by the bank or other executives is taken in particular conditions at that point of time. The only thing to look into is whether it's a mala fide or a bona fide decision. No one will support a mala fide decision. Bona fide decisions must be supported. There can be an error of judgment. It's a very big issue. Because of this fear factor, things are slowing down.
The NPA stress is reducing. I cannot talk about the figures because the results are already going to be out and we are a listed bank. But in the coming times, the stress will decrease slowly. And hopefully, as the stress reduces, the bank’s results would improve.