Better liquidity will help reduce lending rates: Kotak Mahindra Bank’s KVS Manian

RBI Governor Raghuram Rajan says the central bank has no intent to go back to the days of forbearance or reverse the move towards cleansing bank balance sheets. His comments on managing NPAs have been quite poignant. Speaking to Bloomberg TV India , Kotak Mahindra Bank’s president for Corporate, Institutional and Investment Banking KVS Manian says better liquidity will help banks lower the bank lending rates. While RBI initiated the asset quality review (AQR) last year, it’s not necessary that the central bank would continue the process and keep telling banks what they ought to do, he said.

Rajan says he needs more time to analyse whether the shift to marginal cost of fund-based lending rates (MCLR) is bearing fruit. What key indicators will he be looking for?

The MCLR is dependent on the cost of funds of the banks. From what I read from the policy, fairly accommodative stance is expected to be maintained on the liquidity side. So I think better liquidity, which is the expectation going forward, should reduce cost of fund for banks and therefore lower MCLR and cost of lending for the system overall.

The RBI Governor also spoke on liquidity management as well as better transmission of rates. The onus clearly is now on the banks to pass on the rate cut benefits. What do they need to do?

If liquidity is maintained, as the RBI Governor indicated, I think the cost of funds for banks would go down. MCLR is a fairly transparent and an automatic kind of calculation. So if the funds do go down, I do expect the banks to pass it on to consumers. Banks do have challenges on credit growth. Therefore, they will be happy to pass on the benefit.

There were talks ahead of the policy that the Governor may ease some of those AQR norms and make banks’ NPA recognition easier. None of that has been done. In fact, he in clear terms has stated that there will be no move to reverse the demand of transparency in banks’ balance sheets? What do you make of it?

The AQR was a one-time exercise of the RBI. As you have seen from the quarterly results, banks have have done their own reviews of the asset quality. Many banks have not necessarily stuck onto those names that came out of the AQR.

They have, on their own, looked at their asset book and classified the watch list. And it’s not necessary that the RBI has to tell banks every time what they ought to do. Banks are doing their own exercise, recognising and providing for NPAs suitably. So I don’t personally think there is a need to keep doing AQR.

PSU banks have been saddled with bad loans. How insulated do you think private banks really are from the NPA problem?

The NPA issue is somewhat systemic, but it is also a bank-specific issue and dependent on what type of lending a bank has done. Yes, there is a systemic issue and an overall economic issue, but that does not mean all banks must be equally impacted. I think, each bank has its own credit and lending policies and hence each bank is impacted differently.

As far as we are concerned, we have always been relatively cautious on very long-term projects or infrastructure lending unless we have been absolutely sure of all the aspects of the project. In many cases, we have been of the view that projects are not really viable or there are equity-like risks in lending to some of those projects and therefore we should not be settling for the debt-like assets for equity-like risks. So we have been cautious about it and are fairly confident of our asset quality. The only impact we had last year was the one arising out of our integration with ING Vysya Bank.

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