From May 1, SBI will link loan and deposit rates to repo: Dinesh Kumar Khara

Going forward, RBI is quite open in terms of taking steps to ensure liquidity. It is not expected to be a constraint for the lending opportunities to be exploited by the banking system, said Dinesh Kumar Khara, MD, SBI, about the RBI credit policy in an interview with ETNOW.

Edited excerpts:

The RBI monetary policy was along expected lines. As a banker, are you going to pass on this 25 bps cut?

No. In our case, effective from 1st of May, loans of Rs 1 lakh and above and deposits would be linked to repo rate and of course the mark-up in terms of risk premium would be there. So, in our case, we have already linked the loan and deposit rates to repo. That will have an impact directly on the repricing.


The RBI Governor categorically stated that the banks need to do much more in terms of transmission. They will also be coming out with the guidelines so that banks effectively transmit the rates to consumers. How important do you think such directive will be?

RBI has been saying it for some time and that is one of the reasons why at State Bank of India we have revisited this subject and have also linked up our deposit rates also with repo. What was happening in the past was since the deposit rates were not really linked to any of the benchmarks, there was always a challenge because the benchmarks used to differ. So SBI has decided on the linkage with repo and effective from 1st of May we are going to implement this decision. This will mean that our liabilities will also be priced through a benchmark and accordingly when it comes to assets also, we will be linking up with the repo for advances beyond Rs 1 lakh.

Actually, the reasons for the bank not implementing this was essentially because their liabilities were not linked to the repos and now since we have linked up with the repo, we feel this is the best way we can ensure the transmission of any such rate cut.

We have seen how the RBI has shown a rather softer side to the banks this time around, giving that 2% levy on the SLR that can be used for LCR. How are you viewing this?

This step is certainly positive when it comes to liquidity for the banking system and going forward, we expect that RBI to ensure durable liquidity. Going forward also, they are quite open in terms of taking the steps. I do not envisage much of a problem when it comes to liquidity. It is not expected to be a constraint for the lending opportunities to be exploited by the banking system.

More important is what kind of bankable projects would be available in the market for lending. That is something we are looking at.

RBI has announced two other measures both on the counter cyclical capital buffer and external benchmarks. On the issue of external benchmarks, perhaps SBI was just a little hasty and that RBI has not deferred the entire decision. Will SBI be relooking at this decision to link the lending and the saving banks interest rates to the repo rates?

No, I do not think we will be revisiting this particular decision, having decided we will wait and watch. We are going to implement it effective from 1st of May. Thereafter, we will perhaps look at how it really looks like because eventually it has been talked about for quite some time that the transmission of the repo rate changes are not happening for the benefit of the ultimate consumer,

From that point of view unless and until the liabilities at the assets are priced on a particular benchmark, perhaps the transmission will always be a challenge. Having initiated this process, we will watch how things pan out and thereafter we will be taking a call on it.

RBI is trying to set up a taskforce to look at the secondary market for corporate loans. Do you really see a market for corporate loans emerging?

Yes, because of the new guidelines which have come in from the exposure point of view that may create some kind of environment in the economy and we have been thinking for quite some time in terms of underwrite to down sell. That is something which is in our mind. We are quite equipped to handle this kind of a situation but at the same time in order to ensure that there is a market in this direction, some buyers are required also.

Eventually it helps banks which have got the underwriting capacity. Perhaps they can do the underwriting and the down-sell too. This is a new thinking which has been there for sometime. We feel that we are in a position to feed the market but the only requirement is there should be buyers in the market -- some banks which can come in and pick up some stake. When the economy develops, something like this is bound to happen and this is what we have seen in all developed markets.

It also helps the banks in hedging their liquidity risk. It also helps them in hedging their credit risk to a greater extent. Eventually this is the scenario which will emerge. I am sure this framework will certainly help in creating this kind of a market for loans.