What efforts are you making to raise foreign currency deposits? Do you expect big inflows, and do you have options to deploy them?
We have been raising FCNR (B) deposits (foreign currency non-resident – bank) even earlier. Recently, the RBI relaxed the ceiling on rates and removed the cash reserve ratio and statutory liquidity ratio requirements, which offers us elbow room to give higher returns. We revised rates on July 10 and it is too early for trends. We will have to wait and watch as, globally, interest rates are increasing. We have been able to deploy these in loans and we are confident that we will be able to match the loan portfolio with deposits.
Will there be many takers for rupee-invoicing settlement in the corporate sector?
More than corporates, there should be willingness on the part of exporters. If exporters are able to settle their dues in rupees, it is essentially the correspondent bank of the partner country that will have to open the Vostro account (which is opened at a domestic bank here on behalf of a foreign bank). It’s a decision taken to internalise the currency and settle import requirement in rupee terms and ease the pressure on hard currency.
Which countries do you see coming on board? What about Russia?
It will work well with partner countries where there is not a big gap in the balance of trade. Exporters who maintain a surplus in rupees can use it to invest in domestic markets. In the case of Russia, when we are opening the Vostro account of another bank, it should not be used by sanctioned entities.
How do you see credit growth this year? Do you expect to grow faster than industry?
Retail loans have been our engine of credit growth with a 16% compounded annual growth rate for three-four years. We expect a similar trend going forward. Demand for retail credit is determined by income flows, and as long as there is visibility of income there is demand. Earlier, we were not seeing much of a growth in corporate, but this quarter we have been seeing traction there as well and we should see a similar traction from here. The systemic trend is for the loan book to grow faster than deposits. We should be growing at least in line with industry.
There is a feeling that corporates are not investing… Will the rate hikes dampen demand?
Demand for corporate credit will come from improved capacity utilisation and a pickup in working capital. We are now seeing capacity utilisation at 75% and, as this increases, the demand for credit will go up. We are already seeing investment demand from sectors like renewables and commercial real estate. In the core sector … there already are proposals under consideration in iron and steel. We have sanctioned limits for greenfield airports and ports. While we have visibility on the sanctions, the drawals on these accounts will happen over time. Until last year, most corporates had gone for deleveraging their balance sheets. This year we will have to wait and watch because we are seeing outflows in terms of foreign portfolio investment and overall attraction of emerging markets is not that high. So, it is a changed scenario in which the corporates will have to operate.
While lending rates have risen, deposit rates have not. Is surplus liquidity preventing transmission of rates to deposits?
The surplus has come down sharply and, for certain buckets, deposit rates are moving up. It depends on the asset liability management of each bank. When it comes to lending, the loan book gets repriced at a faster pace. The impact of the change in the benchmark is linked to higher interest rate earning for the bank as liabilities get repriced when the contract gets over. Significant portion of deposits is in 2–4-year buckets.
Will your interest margins make up for marked-to-market losses due to depreciation of government securities?
The RBI has already allowed banks to move securities into the held-to-maturity (HTM) portfolio. The readjustment, however, happens only once a year. As and when there is room available, investments are moved to the HTM category and we earn better income from the higher yields. On a quarter-on-quarter basis, things may look bad. But when seen over a year, things will look better. Last year, we fully provided for the security receipts that we held against non-performing loans, so there will not be any provisions there.
A paper co-authored by former Niti Aayog vice-chairman Arvind Panagariya and NCAER chief Poonam Gupta has recommended privatisation of all public sector banks (PSBs), barring SBI. How do you view it?
Performance of a bank is agnostic to the ownership. We have seen accidents in private banks. To that extent, as far as governance challenges are concerned, PSBs are not seen as something unique. They probably looked at the bank in terms of public investors. We are a board-run bank, similar to other private banks. The government holds 56%, but 44% stake is with the public and other investors. The efficiency level is brought about by the executive team.
There is a feeling that PSBs are shackled…
You need to see it from a different angle. Private banks have the option of cherry-picking. As far as social obligations for PSBs are concerned, everyone is talking about ESG (environmental, social & governance). It is unfortunate that the market does not recognise the social role played by PSBs as ESG. When the rest of the market is learning about ESG, we have been doing it for years.
With HDFC merging with HDFC Bank, will you be able to maintain your lead as largest home loan provider?
Competition makes us more nimble. It ensures we shed our fat and should learn to move fast. We will not just be watching. We have been making our investments. We will maintain our leadership position. We have created capacity across by adding new central processing centres (CPCs). We are on target to add another 150 CPCs this year. We will ensure that we are in a position to source well and process efficiently.