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In Response To ABS Article, Now SBI Chief Defends Herself and Says “Rajan’s Scolding Didn’t Lead to Lending Rate Cut”
by
Rajesh Goyal
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On 9th April, 2015, we have uploaded an article under the heading “Indian Top Bankers Lack Knowledge and Fail To Understand A Gentleman’s Signals - They Only Know To Respond to Tough Talking”. In the above article, we have discussed the issue relating to cut in Base Rates by SBI, ICICI Bank and HDFC Bank on the same day, when RBI Governor scolded the public as well as private sector Bank Chiefs for not reducing Base Rate despite two back to back Repo Rate cuts and had dismissed the logic of these bank Chiefs and called it “Nonsense” to assume that cost of funds has not fallen. More specifically, we have also analyzed the earlier statement of SBI Chief in the following terms:- “The funniest part of all these news was a statement by Ms Arundhati Bhattacharya. I had high regards for her as I felt her to be more knowledgeable, as she is from SBI. It was a surprise for me to read her statement given to CNBC-TV 18, wherein she said, “(We) may also cut one-year bucket deposit rate by 25 basis points. We want to see whether this (15 bps cut) gives a fillip to credit growth which is what we would like to see and depending on how that pans out we will take a call going forward." As far as my knowledge goes, Base Rates are calculated based on cost of deposits, and not on the expansion of the credit. Thus, instead of reducing the Base Rate in a jerk manner, SBI should have first reduced the rate of interest on deposits, resulting in lower cost of funds and then on revised calculations, Base Rate should have been reduced by holding a proper discussions in the Asset Liability Committee (ALCO)”.
It appears that SBI officials are worried about the eroding creditability of SBI for caving under the pressure of RBI. Therefore, SBI had now come up with a denial of reports appearing in ABS. The news has appeared under the heading “Rajan’s Scolding Didn’t Lead to Lending Rate Cut” in NDTV Profit. In this news item, it is mentioned that SBI Chief was visibly upset when she had to reply to a question why lenders are quick to raise rates, but slow to cut rates. Ads by Google
Frankly speaking, in the ABS article, we have never taken this plea, but have emphasized on the need to do the change in Base Rate depending on the change in cost of funds. There is a need to re-visit the issue if Bank Chiefs feel that change in Repo Rate has no impact on cost of funds. In that case, RBI needs to introduce new tools which can be more effective and have real impact on cost of funds. In case Bank Chiefs feel so, they need to come out in the open and tell RBI Governor on his face that “Do not expect Banks to change their lending rates based on mere changes of Repo Rate”. Do they have the guts to tell this to RBI Governor? Why are they shy to confront the regulator if their experience shows that Repo Rate Cuts have no impact on their cost of funds? We have also seen with each Repo Rate cut all newspaper start clamoring that now EMIs will come down / rise. Bank CMDs have to tell the newspaper economists that they are wrong in their calculations. However, in the above news there is nothing to suggest as to what prompted SBI to cut rate on the same day when RBI Governor gave a daant (scolding) to bank Chiefs across the banking industry. Moreover, there is nothing to suggest as to why SBI wants to cut deposit rates only when there is fillip to credit growth through this cut of 15 bps in Base Rate. I am still trying to figure out as to how these two are related to each other. Anyway, we welcome the statement from SBI officials and hope they will get out of the slumber of ignoring the regulator’s signals and will be pro-active in taking steps to ensure growth not only for the bank, but also for the economy. SBI has always been considered as way ahead of other bank Chiefs, and I am sure the same tradition will be maintained by SBI Chief. We wish Good Luck to the SBI Head, and hope she will show higher level of maturity in her future statements.
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