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New lending norms may nudge banks towards retail loans: SBI

The Reserve Bank had last month come out with draft guidelines on credit to large corporate borrowers asking banks to make additional provisions if the loan amount crosses the prescribed limit.
“The latest norms regarding lending to large corporates make corporate lending more costly both for banks as well as the borrowing companies,” Bhattacharya said in an interview. “So, the Reserve Bank itself is nudging us towards a model that is more retail,” she added. She was quick to add however that State Bank of India has not seen any stress and only RBI would know about the system as a whole.

RBI had on August 25 issued new guidelines on capping lending to large corporate/related parties. With a view to reducing risks in the system, RBI proposed to limit exposure of a bank to a business group to up to 25 per cent of its capital, down from the existing 55 per cent.

“The large exposure limit in respect of each counter-party and group of connected counter-parties, under normal circumstances, will be capped at 20 per cent and 25 per cent, respectively of the eligible capital base,” RBI has said. The eligible capital base will be defined as the tier 1 capital of the bank as against capital funds at present, it added. The move comes as bad loans are on the rise with stressed assets of the system crossing 14.5 per cent in the June quarter. Bhattacharya said SBI’s retail portfolio is behaving quite well and there are no visible signs of any increase in stresses in the portfolio.

SBI’s retail segment has grown at around 20 per cent last year and also in the first quarter of the financial year. “Today, we have a much better monitoring system so that anything that we are doing is getting monitored on a quarterly /half-yearly basis. Therefore, if stress starts building up we can see that very quickly,” the SBI Chairperson said. “But we have not seen that as yet, at least at SBI,” she said, adding that “I don’t know how it is at other banks but have not heard anything to that effect”. Recently, Bhattacharya had said that retail loans to GDP in the country are at less than 10 per cent, which is one of the lowest among the emerging markets.

She had said: “I think we have still a lot of uncovered space in retail segment to grow. The median age in India is 26.5. So, obviously these are people who need these loans in order to fulfil their very many aspirations. “I think what is being done now is to fulfil an unmet demand. I don’t think we are in bubble territory as yet as long as we continue to maintain our good underwriting standards and also get the help of digital which will enable us to have even better picture.” 

December CPI reading likely to be sub-4%: SBI Research
Inflation trajectory may see a declining trend with December CPI reading likely to be sub 4 per cent largely due to good monsoon, says a report. “Our recent projections indicate that December 2016 CPI reading will be sub-4 per cent while at least 4-5 readings in FY17 will be sub 4.5 per cent,” SBI Research said in its Ecowrap report. The decline in inflation trajectory is expected to be driven by several factors like fall in pulse prices, projection of above normal monsoon, among others. 

“From historical data, it can be inferred that there is a clear downside of at least 60 basis points to headline CPI numbers over the medium-term,” the report said, adding that this alone will pull down CPI to sub-4.5 per cent. The distribution of core CPI over the last 20 months indicates a nicely shaped Bell curve, with mean CPI at 4.5 per cent, it added. Meanwhile, the projection of ‘above-normal’ monsoon for the current year will boost agricultural production in the country which will subsequently bring down the food inflation. 

According to the report, WPI is expected to be greater than CPI, however, the difference will be not so significant and though WPI will be greater than CPI, both will possibly move in tandem, sans any global volatility. On RBI’s monetary policy stance, the report said the Central Bank is expected to go for a 50 basis points cut in key policy rates this fiscal.

“We are still maintaining a 50 bps repo rate cut in FY17, though we believe RBI may go more aggressive on liquidity for rate transmission in Q2FY17,” it said. The next policy review meet is scheduled to be held on October 4. It would also be the first review under the new RBI Governor Urjit Patel, who has assumed charge effective September 4 after the end of his predecessor Raghuram Rajan’s three-year tenure. 
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