Challenges to spur growth linger as several sectors still face stress, and as domestic and global demand remains muted. Speaking to Sumit Sharma, chairperson and managing director, Bank of India, V R Iyer says banks could start lowering lending rates from April as RBI’s repo rate cut has started a rate easing cycle. Excertpts:
What is your take on the economic outlook?
GDP should grow 7.5-8 percent. CAD and fiscal deficit are under control and all other parameters are favourable. But from the business point of view it may take 2-3 quarters for it to pick up. Reforms should improve business climate. Reduction in interest rate alone will not spur growth. One could see a turnaround in power, oil and gas sectors, may be even in automobiles. Steel sector has issues, and textiles is facing stress. The slowdown has been longer than anticipated. Exports have slowed and imports increased. Globally demand remains muted.
Bank of India’s growth has been at 4.4 per cent, though liquidity is good as is deposit growth at 18 per cent. For us the current quarter is also a challenging one. Demand is good in retail but since corporate demand is flat, revenue of banks is also flat.
Do you find any impact of two repo rate cuts?
On treasury side, yields have declined, helping all banks to make gains. Yet, slippages in restructured assets remain an area of concern as provision requirement could shoot up.
When could banks start cutting rates?
Repo rate cut indicates easing of the rate cycle. Banks have started cutting deposit rates and it’ll take some time for cost of funds to fall. Banks can be expected to cut rates from April onward.
How critical is rate cuts for increasing IIP, GDP?
Interest rate is one of the important factors but not the only factor to spur growth. A businessman must have the confidence of being able to get good returns on his investment. Today, we see over-capacities in many industries, demand is weak domestically and globally, and many developed countries face recession. So interest rates alone will not help. It is very necessary to resolve issues regarding stalled projects.
When do you expect demand for loans to pick up?
In infrastructure space SEBs face cash-flow crunches, EPC contractors and power sector are finding it difficult. If issues concerning power and road are addressed, it’ll help us. We didn’t see any salary cuts so retail is fine but there is tremendous competition. Corporate side gives us fee and interest income. When investment climate is not improving my asset quality pressure will continue. It has been there last three years. One requires sustainable growth in revenue to make provisions. It may take up to three quarters for any desirable level of investment, capex, production, working capital and revenue generation cycle to happen.
NPAs is a problem for most PSBs?
All banks are focusing on recovery. We have specially deployed 100 staff for recovery. Corporates are trying to deleverage but there is a limit to that too. New projects from the government side, or PPP could help set the tempo of kick-starting investment.
Infra projects are still stuck?
Yes. One has at least keep rolling these stalled projects.
Tell us about your bank’s capital raising plans?
Capital is a requirement for sustenance, growth, investment. Government has set new welcome performance matrix. But PSBs have varied responsibilities and hopefully the government will be revisiting it (the parameters). It’s not desirable to tap capital market when share price is low. We’ll look at non-traditional routes, dilute stake in subsidiaries and seek permission to monetise assets. We are increasing focus on recoveries. The government may also look at differential voting rights. These measures should help us over the next few years.