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ShareO P Bhatt, chairman of State Bank of India, says better operating efficiencies may be one reason why credit offtake has really not taken off in India despite the industrial revival. The industry is seeing better management of working capital, Bhatt told DNA in a quick
interview on Thursday in Hyderabad. Excerpts:
You have just raised $750 million. What are you doing with the money?
Lots of things. See, even now we have a pipeline of projects both from the public sector and private sector that needs funding in hard currency. These would eat up the entire money we have raised. We have raised the $750 million for two reasons.
One, the pipeline of hard currency projects that we have. The pipeline actually needs more than what we have raised. The other reason is that for more than two years there has been no issuance of such paper from India. We have been looking at this market for some time so that we can set a benchmark for India. I think we were successful in terms of getting the kind of pricing we wanted. Now I am told one public sector and one private sector bank are following the cue. The world has opened its doors, so to say.
How do you look at the proposed new base rate system instead of PLR?
It has to be a win-win. Due to a plethora of PLRs, there is confusion and there is also a lack of transparency. But if there is a uniform rate, it would be more transparent and it would be good for everyone. But how easy or difficult it is to achieve is a different issue altogether.
There is talk of consolidation among public sector banks once again. Do you see things going forward this time around?
Consolidation has been thought of for the last five years or so. It has not made much progress in terms of physical action. Earlier, there was talk about Union Bank of India and Bank of India coming together.
They did have a common platform. It has not so far happened. Some small mergers have taken place. But, within the public sector system there has not been much consolidation between healthy banks. I think these activities have just kicked off some kind of debate on pros and cons of the consolidation.
The current economic revival has not increased credit offtake. Why's that?
It is difficult to explain, actually. If you look at the retail sector, the credit offtake is not low at all. Lots of home loans and auto loans are being given out. The retail sector is quite robust. But in aggregate, growth seems to be subdued. One of the reasons could be that the industry has learned to be more efficient. There is better management of working capital and just-in-time inventory; commodity prices have also gone down. There are less people doing more work in the industry in general.
In some cases, I think since it was little time consuming to raise their own capital, the related expenditure did not take off. In the last few days, there were successful IPOs and QIPs. All this is a precursor to these people doing something with the money raised. There will be need for some additional money and that would come in from the banking industry. Going forward, we think credit growth is going to be much more than in the first half of the current financial year.
Which sectors are still seeing loan delinquencies?
The small-scale sector and the export-related sector where there are some concerns. The other area is commercial real estate, largely related to malls. Otherwise, there is a fair amount of improvement. We continue to grow at 6.5%, while the projections are at 6.75%.
Does the excess liquidity concern you considering the inflation guidance?
Excess of anything is a concern. But I don't think this liquidity has anything to do with inflation. Bulk of the inflation is coming from food and food-related sectors. It is not liquidity that is driving up prices. Because of excess liquidity, banks rates are low and that is helping keep prices at low levels.
Do you see interest rates hardening in the coming months?
No, I don't see it hardening in the current financial year. There is so much liquidity in the system, even if the credit offtake were to take off, which it will, and even if it is twice, thrice or four times earlier pace, deposit accretion is taking place at a much faster rate. Not only is it rising faster than credit, it is rising faster than what the RBI anticipated. This will continue for the remaining part of the year. Plus, there is an overhang. Even today the RBI is getting Rs 1 lakh crore or more into its system in the form of reverse repo. This is the surplus the banking system has. So I don't think that the interest rates will go up.
