Do you think the lending rate will start declining now Will the deposit rate also fall
There is every indication that the interest rates will stop increasing now. One, the Reserve Bank of India (RBI), in its previous policy, had hinted to that effect. Two and, more importantly, inflation appears to be coming under control. The RBI is basically guided by the latter and its purpose of increasing rates was to control inflation, which was hovering much above any comfortable level for the economy. Once the situation stabilises, I see the rates lowering in the new fiscal. Deposit rates are also linked to inflation to protect them from a loss in value. Also, when lending rates go down, banks can reduce their cost of deposit without adversely impacting their net interest margin (NIM). I see deposit rates falling soon.
How much do you think will the rates fall in the next one year
Once a trend begins, it runs for some time. I expect the declining trend to continue in 2012-13. But it may not match the speed of the increase in lending rate that we have seen in the recent quarters. One should expect a fall of around 100 basis points in the base rate during the new financial year. It can be more, if the RBI considers giving some relief to the banks on the cash reserve ratio.
Was retail lending affected in the last one year because of higher lending rates Have you seen a growth of non-performing assets in retail lending
When inflation is galloping, consumers have to spend more on their day-to-day life. It means less saving and, so, lesser capacity to pay EMIs (equated monthly instalments). This is an important factor in delaying decisions by the retail customers. But then, there is another side to this. For example, when demand in housing goes down, the price stops climbing at the speed seen at other times.
Consumers find it an opportune time to buy a new home and go for loans. We have continued to push retail lending because we find that when there is a downturn in the economy, it is non-retail that contributes more to NPAs.
We have taken a number of steps to stay ahead in retail lending, including some innovative ways. We advertise a number on which any customer wishing a product merely needs to send an SMS and our online business centre gets into action. It is another innovation, which is doing multi-tasking on our lending canvass.
We had introduced Car Loan in 10 Minutes a few weeks ago and now we have launched Home Loan in 20 minutes'. These are very innovative and unique-selling propositions not available from any public sector bank and maybe not even from private and foreign banks in the way we are doing.
We have not seen any unusual growth in non-performing assets in retail lending. We have faced bigger problems in the areas of agriculture and larger loans. Retail customers are keener on repaying in any situation. What we need is a proper mechanism to follow up a very large number of retail loans with a vast geographical spread. To this end, we have developed a very innovative in-house Account Tracking Centre.
Has the withdrawal of prepayment penalty on home loans led to any rush for prepaying such loans
The withdrawal of the prepayment penalty has not affected us in any way. There are multiple reasons. Most importantly, our interest rates are so competitive that we do not expect anyone to move. We give home loans up to R30 lakh at our base rate. And our base rate is
lower than all public sector banks, other than State Bank of India, and we give huge flexibility in repaying loans.
And earlier also, there was no prepayment penalty if the customer was repaying from his own sources.
In fact, the introduction of no prepayment penalty is actually going to help in increasing our home loan portfolio.
What has been the impact of deregulation of the savings rate on your bank Have you seen any flight of deposits to banks offering better rates
The savings bank rate deregulation has not impacted us negatively to see any major flight of deposits. On the cost front, it has not impacted because we have maintained the same saving interest rate that we had at the time of deregulation. And it is not impacting in the level of deposits too, because we have introduced a product to hedge against any flight of large deposit.
On the line of SBIs unFixed deposit, we have introduced Freedom Deposit. It carries an interest rate of 8.5% for seven to 180 days, with a penalty on early withdrawal. The minimum deposit requirement is R50 lakh in our case, unlike R1 crore by SBI.
The maximum savings rate offered by any private bank is 7%. We are offering 8.5% under, virtually, the same terms.