SBI chairman reassured margins to remain unaffected by cut in home loan rate

O P Bhatt State Bank of India’s chairman has reassured analysts that the bank decision of cutting home loan rates to 8% will not affect the margins. He also indicated that the bank will raise capital but the process for this will be done only after the elections.

Addressing the chief investment officers (CIO) of top fund houses in Mumbai on Wednesday, Mr Bhatt pointed out that the bank is considering adding nearly 1 lakh new customers to its existing base by offering the special home loans offer. This will also make possible for them to cross-sell other products to these customers, which in turn will result in additional revenues as well as savings by way of lower marketing costs.

Explaining about the 8% offer, Mr Bhatt notified the decision is also motivated by the fact that the bank invests a significant amount of surplus cash in the repo market where returns are only 4%. Therefore by redirecting this money as loans to home buyers, the SBI will be able to make twice that rate of interest. Mr Bhatt notify the CIOs that even if a part of surplus cash — one which they receive 4% — is forward as loans to home buyers; it will in turn boost margins.

However by the quarter ended December 3008 SBI net interest margin (NIM) improved to 3.15% from 3.01% in the corresponding period last year. Mr Bhatt notified analysts that he is expecting real estate sector to stimulate with SBI’s 8% scheme. As per the report of Antique Stock Broking, Mr Bhatt acknowledged that there are ownership issues with respect to maintaining the government share while raising capital. The report also stated, “Besides, political will of the new government would also be considered”.

As per the report Mr Bhatt, is expecting NPAs to rise gradually. NPAs might even double in case the economy continues to remain under stress, but he warned that it will not touch the 90 level like the earlier. The report also citied Mr Bhatt as saying that NPAs will rise in the short term due to provisioning norms, but will return to standard assets when the economy starts improving. He even anticipates negligence in export-oriented sectors like textile, gems and jewellery, auto components and IT sector.

The SBI chairman revealed that high-cost deposits comprise about 25-30% of the total assets and are for shorter duration. As these bulk deposits get revalued, the cost for the SBI will come down. However he stated that in the short run, the bank might feel some pressure on its NIM as it raised term deposits for three years whereas the impact of the cut in lending rate will be visible on the entire portfolio.