The mortgages or the retail loans don't get repriced in the interval,” he said. Kumar explained that banks are very reluctant to pass on the interest-rate risk to the retail borrowers.
SBI chairman Rajnish Kumar on Friday said that banks have to submit their capital requirements to the government by December 31. He added that after banks submit their business strategies, the finance ministry will decide on the allotment. “December 31 is when banks are expected to work out their requirements, their business plans and once that happens, the ministry also will have an idea of who needs how much and what should be the order of prioritisation,” Kumar said on the sidelines of Asian Bankers Association conference here. Last month, the government had announced R2.11 lakh crore recapitalisation of public sector banks. It will infuse Rs 76,000 crore through budgetary provisions and the rest through recapitalisation bonds of Rs 1,35,000 crore, and the balance through raising of capital by banks from the market while diluting government equity (estimated potential Rs 58,000 crore). Speaking on transmission of RBI policy rate cuts into lower bank lending rates, Kumar said that if effective transmission has to take place, it cannot be on the lending side alone. “And, how do we protect the retail depositors and retail borrowers, that is also a very valid point which Viral Acharya mentioned and the fact is that for banks in India, retail deposits constitute a very high portion of the total deposits,” Kumar explained.
He added that if the bank is unable to transmit the rates to such a large section of retail depositors, it will also have to find ways and means to take care of it. “But, if any new system comes in, we will ready ourselves for the new system and if it is an external benchmark. Banks and other players have given their views and let us see in what shape and form does it come,” he said. According to Kumar, the external benchmark worldwide – for example, Libor – is a benchmark which is well understood by the financial systems across the world and any loan is mostly linked to the Libor. “When it comes to the mortgages, worldwide variable-rate mortgages are discouraged. Mortgages are always fixed-rate and they get repriced at one-year, two-year, three-year, five-year, even seven years and in some countries, even 10 years. The mortgages or the retail loans don’t get repriced in the interval,” he said. Kumar explained that banks are very reluctant to pass on the interest-rate risk to the retail borrowers.