Page 6 - Banking Finance May 2020

BANK UPDATE

The credit costs for the system could Banks in dilemma over pays an interest of 5.5% to depositors
increase up to Rs 2.7 lakh crore in below Rs. 2 crore in the one-two year
FY21; around 70 percent of which lowering deposit rates in bracket, after a 20 bps reduction on
could be attributed to PSBs. to continue 12 May.
"If the accelerated provisioning regime Banks in India are evaluating the deci- According to Mrutyunjay Mahapatra,
is reinstated, then there could be ad- sion of reducing interest rates as they officer on special duty at Canara Bank,
ditional credit costs of 0.3-0.6 percent. try to protect margins while passing on customer spending has declined in the
This could require the government to the benefit of the Reserve Bank of last couple of months, and people are
infuse additional capital into PSBs," it India's (RBI's) latest repo rate cut to more inclined to save. This surge in
said. borrowers. supply of deposits gives banks the free-
dom to lower deposit rates without
The report expects the capital require- According to the chief executive of a the risk of losing out on low-cost funds.
ment for PSBs in the range of Rs public sector bank, a cut in deposit
30,000-55,000 crore in FY21 under a rates is inevitable and it is not clear Banks may need capital
benign provisioning regime. any longer as to what the terminal
rate or the lowest possible rate could for provisions
Standard Chartered Bank be. At a time when large banks like The Reserve Bank of India's extension
State Bank of India (SBI) are lowering of moratorium by another three
appoints Kusal Roy as lending and deposit rates, smaller months to August 31 and the likeli-

head of retail banking banks cannot afford to stay put, the hood of businesses remaining crippled
for months is raising the possibility of
Standard Chartered Bank India said it banker said on condition of anonymity. thousands of crores worth loans being
has appointed Kusal Roy as its head of "I will have to survive in the loan mar- restructured. However, the absence of
retail banking. Roy has over 25 years ket and if I do not lower interest rates
relaxation in restructuring norms could
of experience in retail banking, pay- on my loans, some other bank will take
see a substantial rise in provisioning
ments industry and the non-banking away the customer. But if I lower my
and force banks to raise capital in a
financial company (NBFC) sector. deposit rates, my depositor base will tough environment.
Prior to joining Standard Chartered suffer. It is quite a difficult situation," Bankers say that the RBI may have to
Bank, he was the managing director said the banker. tweak rules that demand provisioning
and chief executive at Tata Capital Fi- Analysts at brokerage firm Motilal if the existing promoters are retained
nancial Services Ltd. During his career, Oswal said that the continued mon- after a loan restructuring. They say the
Roy has held various senior roles in ICICI etary easing will drive further reduc- existing promoters have the best
Bank, Barclays Bank and Citibank India. tion in lending yields and banks have chance of keeping the business going
Roy will report to the bank's India chief been sharply cutting retail and bulk instead of going for a new one who
executive Zarin Daruwala, and regional deposit rates over the last few months. would find it difficult to run a medium-
head of retail banking for ASEAN and In April, SBI chairman Rajnish Kumar sized firm.
South Asia Sebastian Arcuri. said that depositors were complaining The need for restructuring is acute,
"... I am confident that Kusal will build that their interests were not being especially in aviation, hospitality and
on the momentum, and also contrib- protected. travel as they are staring at an abyss
ute to the strategic leadership of the in terms of cash flows with unprec-
"Ultimately, there is a limit on how
franchise as a key member of the Coun- edented uncertainty on recovery.
much we can hit the depositors. I am
try Management Team," said getting a lot of feedback from deposi- "The cash flows in these sectors are
Daruwala. tors that SBI does not care about down to zero while they still have to

Roy did his bachelor of technology depositors," Kumar had said.After pay their fixed costs. All sectors have
(BTech) from Indian Institute of Tech- repo rate cut, Kumar said SBI will been hit but these are hit more se-
nology (IIT), Kharagpur and post- convene a meeting of its asset liability verely... Restructuring is the only op-
graduation from the Indian Institute of committee, which decides on interest tion," said a senior public sector bank
Management (IIM), Ahmedabad. rate changes. India's largest lender executive.

6 | 2020 | MAY | BANKING FINANCE