A cut in repo rate is the beginning of a rate cut cycle. It will improve sentiment and help industry in the longer run, CVR Rajendran, chairman and managing director of Andhra Bank, tells Sumit Sharma. Excerpts.
What’s your outlook on the economy?
Prices of oil and commodities have fallen and that’s a great support for our economy, along with inflation control, oil bill, CAD, and capex. Yet, in the short-run, our exports may slow as many large economies are in trouble. Since agro prices are falling, there will be shrinkage on agro-incomes. If the global economy improves, we’ll be able to grow at 7 per cent, but a slowing global economy may hold us back at 5.5-6 per cent.
What impact will the rate cut by RBI cause?
It is the beginning of a rate cut cycle. Banks will cut deposit rates by 25 bps immediately. Lending rates are likely to take a bit longer since deposits get re-priced only after maturity date. Any immediate cut in lending rate will hurt yield-on-advances, and net interest income since more than 80 per cent loans are related to the base rate.
Is 25 bps repo cut sufficient to lower your base rate?
Usually, there is a time lag between cut in deposit and lending rates. Also, 25 bps lower rate is unlikely to suddenly attract more borrowers or improve a company’s profitability. Rate cuts will follow, so it makes sense for industry in the longer run. Sentiment will become positive. Of course, a bank will cut rates earlier to maintain market share if peer banks are cutting base rate.
RBI is strongly against loan waivers. How are you tackling agriculture NPAs?
We are also against loan waivers. We had 2 per cent NPAs on agriculture till last year but after talk of loan waiver, it rose to 8 per cent. It spoiled the credit culture not only in agriculture, but also allied activities and small businesses. It’ll take one or two years for us to come back. In Telangana, we have recovered 80 per cent of the NPAs. In AP, the process is going on but since the state has given one loan waiver per family, other loans taken by the same family are sometimes difficult to recover.
Where do you foresee Gross NPAs that are currently 6 per cent?
We expect our GNPA to decline to 5 per cent by March quarter. A pick-up in the economy should help us lower it further.
Do you plan share sale to raise capital?
We recently raised tier-1 bond for Rs 500 crore. We may raise Rs 500 crore once rates fall. This should see us through even if there is no allocation from the government. We don’t plan to sell shares. At Rs 95, shares are at a discount to book value of Rs 140.
How will Gyan Sangam influence the course of our banking?
Even we didn’t expect the government to move so fast. Within a day we got circulars regarding no government interference. Banks have been asked to go ahead with their annual plan and also convey what they expect the government to do, with a reporting system and timeline. All suggestions, except those requiring legislative changes, will be implemented immediately.