State Bank of India (SBI) is in a digital mode now with close to 80% of its transactions taking place via alternate channels. While it has seen a surge in deposits following demonetisation, the interest rates that customers earn would depend on how much of the money stays back, managing director B Sriram tells Shayan Ghosh and Shobhana Subramanian. Excerpts…
How do you see loan growth shaping up in the current environment?
This year has been pretty tepid, in the sense that we did around 4.5% up to December though two or three things need to be highlighted here. One, of course, was the shift of loans to the bond market because of the price differential for higher rated corporates. We have had almost Rs 32,000 crore of short-term loans going into the commercial paper (CP) market and another Rs 7,000-8,000 crore into bonds. In addition, about Rs 12,000-13,000 crore of loans against FCNRB deposits have been paid out. In all, about Rs 50,000-52,000 crore of our loans have been impacted. If you factor that in, we could have managed around 6% at the end of December. Typically, March is a busy quarter in terms of budgeted achievements and also because new proposals come up after the September quarter and large corporates finalise their plans. We are therefore looking at around 5-6% growth this year.
What are your expectations from FY18?
I believe that FY18 will be better than this year and expect credit growth of 8-9%. The reasons are twofold. One of course is that the retail side will continue to hold up. Today’s growth of about 18-20% in home loans and personal loans should be sustained next year. On the corporate book, we do have some green shoots which could turn into growth. Today, if you see the loan book, the mid-corporate segment is seeing negative growth while the large corporate book has witnessed 3-4% credit growth. But looking at our proposals on hand, I think we will be the beneficiaries of some refinance owing to our lower interest rates.
Do you see the difference between bank lending rates and bond market rates narrowing?
The difference between the bank lending rate and the bond market rate has already narrowed to some extent because we brought down the MCLR rate by 90 basis points in January. Moreover, companies which make use of the bond market are rated AA and above and are able to get loans at close to the MCLR rate as well. Loans also have certain features which are not available in bonds.
What is your view on interest rates on loans and deposits?
In terms of interest rates, we will have to wait and see since going forward they will be driven by the demand for credit. Basically, the substantial decrease in lending rates in January was intended to spur demand. And if you were looking at credit growth in excess of what we are targeting, then the additional volume growth will compensate for the pressure on margins.
Meanwhile, deposit rates will continue to move in tandem with the deposits made due to demonetisation. We have to see how much of it really goes out. While 30-40% has moved out, there is still a substantial chunk remaining with us. Initially, we had estimated that around 15-40% of the deposits would stay and today we feel that the retention may be towards the upper end of the ceiling. If that is the case and there is no credit growth, then we are looking at a mismatch in terms of the applicability of those funds to the asset side. Therefore there could be some resizing of the deposit side
Are you witnessing a saturation in retail loans?
The retail side is pretty healthy. But corporate loan growth will not happen overnight. Moreover, the books of most of the larger corporates are already leveraged. Generally, the instant pass-through effect on loan growth is on the retail side. Renewable energy is still a priority for us. Then there are completed road projects, construction; we are also under-exposed in services, NBFCs and so on.
Are your customers adopting alternate banking channels?
There has been a huge spike in digital transactions because of demonetisation which forced people to use cards and wallets. That has given us a fillip, and we have gone out there and got a huge number of customers. All the digital channels are seeing growth and today almost 78% of our total customer-facing transactions are happening on alternate channels.