Core sector must start to invest now… private consumption has picked up: SBI Chairman

The second sector is textiles. A lot of people whom I spoke to think that the tariff talk is more beneficial to Indian textile manufacturers because the sourcing will now shift to India. The exports which go to the US are essentially household items such as bath linen and bed sheets. So having said that, even assuming that a 20 per cent tariff or so is what is being talked about, that impact can be absorbed by our exporters. That is our broader assessment. We do not see headwinds happening in terms of any asset quality on account of tariff related issues. Those concerns are not there.

Our economy has slowed down in the last 2-3 quarters. Do you think this trend will continue or is there any revival in the offing?

I think we are comparing the growth rates post-COVID immediately and then we are saying that there is a slowdown. Slowdown is definitely there when compared to the immediate post-COVID growth rates. Our internal view is that as long as there is a GDP growth rate above 6 per cent, we should not be unduly worried about it. India definitely requires a growth rate of 8 per cent to progress but this (current) growth rate (of around 6 per cent) is not to be really worried about.

We must realize that the slowdown which we are talking about could be a blip. The long-term story of India is intact. Even for the current year (FY2025), our own economic research department places growth estimates at around 6.7 per cent. If we are able to grow at 6.7 per cent, we will be one of the best performing economies.

You said that above 6 per cent growth is good, but for an economy of our size 8 per cent is desirable. Which are the areas where we are lagging and need fixing?

I don’t call it fixing anything. But obviously, for the economy to grow, you need consumption. You need infrastructure spending and private capital expenditure. These are all things which are required. And so far, the major heavy lifting was done by the government of India in terms of capital expenditure. Private capital expenditure is happening in certain sectors, such as renewables, roads and a significant portion in refineries. But the core sector, such as steel, cement has to invest. They all have reached the capacity utilization of 75-76 per cent. This is the time they generally go for brownfield expansion or greenfield expansion. They all seem to be worried about external factors on how the tariffs are going to work out or if a particular country is not able to export, then whether the dumping will happen here. But I think these are all concerns which we feel can be overcome.

Once consumption picks up, private capital expenditure will happen in sectors that are not witnessing (private capex). Otherwise, if you see our (SBI’s) pipeline of corporate lending, it is about Rs 4 lakh crore… half of it is sanctioned but yet to be disbursed and half of it is under discussion. This is a significant pipeline and the sectors also are diversified other than the core sector.

A lot of people are also measuring private capex through corporate credit. I would say that many of them (corporates) may not always be required to borrow. They may have cash of their own and it will take some time to reflect in corporate credit. So a combination of this… if consumption story picks up which is anyway evident and private capital expenditure is the only thing which has to come back in a big way across the sectors.

After bringing down taxes, the government is now pushing for consumption. Global concerns are also weighing. If manufacturers are too late won’t there be supply-side concerns, which could be inflationary?

I think the manufacturers are well aware of that. They have been in the business for so many years. As financiers, we engage with them. We don’t want them to get into the supply side situation and they are also aware of that. I think that’s what gives me confidence is that the capex cycle will pick up sooner than later.

What is your assessment? How many quarters are we from there?

I can’t put a particular number of quarters but I think it will be soon.

Do you see non-performing assets rising in the next 2 or 3 quarters because of the slowdown in the economy?

As far as asset quality is concerned, the overall asset quality is very benign now. Any asset quality in the banking system is a function of macros also. We don’t have any concerns at this juncture. There would be some quality concerns in certain segments, for instance micro loans or small value loans, but a lot of measures have been taken by lenders as well as the RBI. I feel it (concerns in micro loans) is not such a strong systemic risk that we should be worried about.

Post the Budget announcements, do you see consumption demand, particularly urban consumption. to strengthen?

Rural consumption is alright, but we may have to see the trend post-rabi harvesting. But broadly some of the indicators are better. In terms of urban consumption, the expectations of consumption have been created. Now, the budget proposed that up to Rs 12 lakh there will not be any income tax. The economic data indicates that private consumption in the current quarter has picked up. Private Final Consumption Expenditure (PFCE) has reached 7.6 per cent, which means that consumption is coming back. There are certain sectors which are slightly slower than others, such as the auto segment. The auto sector witnessed very good growth in October-November, but December onwards it has slowed down. But overall, private consumption seems to be moving in a positive direction.

What is your assessment of the retail credit market? Do you think RBI should now relax those norms so that more people can come to the credit market?

Retail has two or three main components. For example, if you see housing loans are doing very well within the (retail) segment. A lot of people, when they talk about retail, they are only talking about unsecured personal loans. I think we have to look at retail as a big cohort. The home loans segment is growing at 12 to 14 per cent. That is one positive.

Retail unsecured personal loans have slowed down. The regulator was worried about the kind of leverage with the small borrowers who were coming for the first time into the credit system were acquiring. So, when they started borrowing from multiple lenders, the leverage was higher. That has now slowed down. Internally also all lenders are looking at what kind of lending is happening. At the system level, the credit bureau score is getting refreshed faster now. It was getting refreshed once in two months earlier or once in a month in some cases, but now every 15 days the bureau score gets updated. This means that the new-to-credit or first-time borrowers cannot borrow immediately from many people before they realize that there is a leverage. This is a good development from the systemic level.

The RBI’s recent measure on restoring risk rates on lending to NBFCs would definitely make NBFCs look at this (unsecured personal loan) segment afresh, with much better risk management in place.

Do you think the risk weights imposed by the RBI are counterproductive to what the government has tried to do to boost consumption in the budget?

It’s all a balancing act. You need to look at the whole system’s health and at the same time, without curtailing the credit available to people who are at the bottom of the pyramid. In my view, RBI tried to put the system on a watch. There is always responsible lending and responsible borrowing. These two are required to be developed simultaneously . We can’t really do away with that.

Do you think there could be some easing?

I am sure they (RBI) will watch how the industry is behaving, and if they are confident that lending practices are much better, there is responsible borrowing happening, they may even review that. I think we should also not overplay the unsecured personal loan that is slowing down the economy. That’s a small component of overall lending. Nearly Rs 167 lakh crore loans are outstanding. I am not saying that it’s not important. Every loan that you give has a multiplier effect.

Do you expect more rate cuts in the coming quarters if inflation trajectory remains as per the RBI’s expectations and growth also remains strong?

The general expectation is that it will be a shallow rate cut, maybe another 50 basis points in the calendar year (2025).

Do you see a rate cut in the April monetary policy?

There are mixed views. I think there is a 50-50 chance of a cut in April.

The rate cut that happened did not have the impact that was desired. Already the CD rates are high.

The immediate rate cut impact will be on two things. One is that repo-linked loans are repriced. If you see housing loans and everything which is repo-linked, there is no choice for anyone, it (repo rate cut) has to be automatically given to the customers. The rate transmission also has to happen by repricing of the deposits. March is not the time to reprice deposits by anyone. I think we will see how it plays out in the next quarter. The real effect of this 25 basis point rate cut on the liability side will be seen only in the next quarter.

In the last 11 months, gold loans have seen a growth of 70 per cent. What is the reason?

Whenever the gold prices go up, gold loans will generally go up. Earlier people probably were not as willing to monetize their gold. They are willing to monetize their gold now. If you see the history of gold in India, whenever prices have gone up, people used to sell gold. They were not borrowing against gold. Now because of the presence gold finance companies across the country and also because of mainstream banks opening up lending against gold in a big manner, a lot of people prefer to take loans rated than selling the gold.

Is deposit growth still a concern? Do you think if the GDP grows and the markets turn bullish, then money will flow back to the markets and mutual funds…. like what we witnessed last year.

Is the money flowing back now? I don’t know.

When the rates were high, that was the best time to garner deposits for banks. Going forward, there may be more repo rate cuts. Then when the rates are down, will the markets rise further and hamper deposit growth?

As the economy matures, the savers also mature. In the initial stages of savings, the bank is the most preferred destination. As the economy and the markets mature, and savers also come to know of various (investment) options, there is a sense of asset allocation coming in. I don’t think anybody and everybody will put all their savings into the market. And it is also a fact that all savings will not come to the bank. So this asset allocation will continue to be there among the savers.

The market does well or does not do well, people may temporarily withdraw from the market, but broadly they have realised that one cannot put all the money in a bank account, or in mutual funds, or in the stock market. So this kind of allocation keeps happening. As the GDP grows, the ability to save in the economy will increase. So that gives us confidence that the bank deposits will continue to be accruing. It may not be as high as the 15-16 per cent growth rate that we saw during COVID. It is unlikely to happen because people were mainly saving through banks at that time. Bank deposits will not fall out of fashion. This is our assessment.

There was a shortage of liquidity in the system because of RBI’s measures to stabilize rupee, dollar appreciation and also on account of trade wars. Where do you see the rupee moving? Do you see further depreciation?

On the liquidity front, RBI has taken several measures. They have been consciously working towards ensuring that the system is sufficiently provided with liquidity. So whatever movement is happening on the rupee side is more in terms of the dollar appreciation. If you see the triggers, they are essentially coming from the dollar index movement. It is very difficult to put a number at what level the rupee will be there, but I think as the dollar index stabilizes, the rupee also will stabilize.