Rates may go up in 3 mths if inflation breaches comfort level

Written by Kavitha Venkatraman | Updated: Nov 15 2009, 02:50am hrs
After taking over as chairman and managing director of Andhra Bank in August, 2008, RS Reddy has worked relentlessly to transform the image of the bank and build a larger footprint for it. In an interview to FEs Kavitha Venkatraman, Reddy touches on various issues before the industry and his plans for Andhra Bank Excerpts:

What is your take on the current liquidity situation in the market and when do you think the government should exit from stimulus packages

Liquidity overhang exists in the market but credit offtake is not going up. Normally, when there is excess liquidity, credit offtake should be good. In the first six months of the current fiscal, growth was not even 5-6%. The recovery process has not reached a level where we can see robust growth.

In such a situation, timing the exit route is tough. The Reserve Bank of India is tentative on the whole issue and would look at the whole market in a calibrated way. Hence, it enhanced the SLR and withdrew some of the refinance windows in the recent review of the monetary policy. Actually in the banking system there is much more liquidity than what can be taken away by these measures. These are signals to the banking system that the process of exit has started. Liquidity should be reduced to such an extent that it does not affect inflation and does not hamper credit growth.

I anticipate that if inflation numbers start going up beyond the comfort levels then RBI may bring in measures in the next 2-3 months like increasing the CRR, repo or reverse repo rates to take out the liquidity. It all depends on inflation, liquidity and credit growth.

Which sectors are showing signs of recovery

Apart from the export-related sectors, other sectors didnt and are not seeing too many problems. The problem is of the comfort level and psychology of the customers. Entrepreneurs are perplexed about whether or not to make an investment at this time. In sectors like power and infrastructure, players are looking to expand their activities. The MSME sector has also revived and working better. The real estate sector has started showing signs of recovery at least at the low and top end housing segment. Also, banks have restructured their loan packages that has given borrowers a breather.

What kind of growth does the banking industry expect in the current fiscal Where does Andhra Bank stand

As per the RBI, the banking industry should register a growth of 18%. However, there is serious concern about that kind of growth. In my opinion, too, registering this kind of growth overall is difficult. Andhra Bank is confident of growing at 20%-25% by the fiscal end owing to the fact that we have corporate sanctions to the tune of Rs 15,000 crore to be disbursed over a period of time.

Of this, nearly Rs 3,000 crore to Rs 4,000 crore would be RBI may increase rates if inflation goes beyond comfort level disbursed during this year and next year another Rs 7,000 crore-Rs 8,000 crore should be given out. The balance would get passed on to fiscal 2011-12.

Credit sanctions have been robust. We sanction about Rs 2,000 crore-Rs 2,500 crore at corporate level every fortnight. There has been enough demand, especially in retail and the MSME segment. Many processing units, cotton spinning and ginning mills, rice mills tobacco mills are approaching us for credit. Andhra Bank has got the strategy right by focusing on retail, MSME and agriculture sectors.

How close are you to achieving targets that you set while taking over

I kept revising the targets to make the bank operate more efficiently. Earlier, Andhra Bank was perceived as an inward looking regional bank and did not benchmark itself to those outside. Because of this our products and processes did not improve. We had only 100 branches under the core banking platform and we did not have a strong presence outside Andhra Pradesh. The bank didnt have a business re-engineering process and our monetary system was weak. In the last one year, we have come a long way. We have progressed well and our numbers speak for themselves. All our branches are under CBS, our monetary system has become more vigorous and weve opened 104 branches outside Andhra. On an average we open 50,000-55,000 savings accounts every week.