RERA has revived home sector demand
The government announced a major recapitalisation plan on Tuesday. What is your fund requirement?
We will work out our numbers and estimate the capital requirement. But we are better than the Basel III estimate. Given that we account for one-fourth of the banking system, I am sure the government will prioritise our requirement.
The government has also talked about monetisation of non-core assets. What is your plan, including on the real estate assets?
That programme will continue. It’s a separate exercise.Our properties will be handled by SBI Infrastructure Management but hiving it off is not a very tax-efficient option and there are complications.
How do you see the overall economic situation?
The India story remains intact, which is a view that is shared by everyone. There is no real slowdown in con sumption. In manufacturing sector, things can be better.But the government’s announcements for the infrastructure sector will give a major boost to employment and given the linkages with other sectors, higher government spending will help a lot of industries. I see major gains for cement and steel. Higher manufacturing activity may not see as much increase in jobs as in the past due to automation, which has reduced the employment potential. But more construction will mean more employment and the sector will have a cascading effect on other sectors.
Given the slowdown in growth and inflation remaining below 4%, do you expect RBI to cut rates?
We don’t see an immediate reduction in rates, especially in the December review.
Is there scope for banks such as yours to reduce deposit rates and also lending rates, especially for housing and other retail loans?
It will depend on individual banks. But given that credit growth is muted, there is scope for some further reduction in interest rates in certain baskets. While the overall decision will be taken by the assetliability committee, but some changes may happen.
One of the problems for low demand for loans is over-capacity in the system. Have you seen an improvement in the situation?
There is a problem in sectors such as power, where a lot of capacity is idle or under-utilised. The demand for loans from generation projects is not there. In other sectors such as steel, there is a balance between production and consumption. There will be more demand from the engineering sector in the coming months and I also expect demand from defence production and railways. With the latest thrust on infrastructure, the investment cycle will pick up. Automobiles are doing well with car sales being strong and light commercial vehicles also doing well. There was some disruption due to RERA but now all developers are marketing RERA-approved projects, which has reduced the trust gap between the buyer and the builder. Now buyers feel assured and the residential sector demand has revived. The thrust on affordable housing is also positive for the sector. These are pointers to things turning around (in the economy). The finance minister spoke about indis criminate lending between 2008 and 2014, creating problems for banks.How do you prevent that?
A: When we do business, the risk management department has to be very strong, something that is a focus for us. We need to strike a balance between business growth and the risk appetite.Pricing of risk is a very crucial element. In the past, the problem was excess liquidity , which meant that pricing of the risk was not proper. If the risk is higher, then the re ward has to be adequate. Due to higher liquidity, everyone was chasing few assets and the risk was under-priced.We need to get the risk-reward framework right and the anxiety for growth should not upset that. GST is seen to have created pressure on SMEs.What is your feedback?
The steps announced by the government should help clear some of the problems as most of them have concerns related to timely realisation of receivables. The move for electronic registration of public sector companies will help clear the dues of MSMEs on time. I hope the private sector also responds in a similar fashion. Have you seen a rise in demand for working capital post-GST as the criticism is that funds are getting locked up?
There is no major increase although we have launched a special product, SME Assist, that provides for a 20% increase in working capital for six months. I have spoken to companies and there may be some technical issues and filing problems initially but the feedback is positive as it will result in formalisation of the economy .Businesses will gradually adjust to the change.