India’s largest lender State Bank today said it expects Reserve Bank to lower the mandatory cash reserve requirement of banks or CRR by 50 basis points on July 31 but sees no reduction in the key short-term lending rate.
“We expect a 0.5 percentage point reduction in CRR (the percentage of deposits that banks park with the RBI) to ease money supply. Also,this will have better effect on monetary transmission than a reduction in the short-term lending rate,” SBI Chairman Pratip Chaudhuri told reporters after announcing the successful conclusion of a USD 1.25 billion overseas bond sale.
RBI will announce its first quarter monetary policy review on Tuesday in the backdrop of slowing growth,poor investment sentiment and persistently high inflation.
Yesterday,SBI had closed a mid-term note or bond issue at a coupon of 4.125 per cent,making it the largest and cheapest bond sale by a domestic lender till date.
Chaudhuri said the asset quality of the Government-run bank has improving compared to last year. He did not give any further details citing a silent period ahead of the earnings.
The bank will announce its April-June quarterly earnings on August 8.
The comments came after SBI shares slumped as much as 3.8 per cent today as a rise in non-performing assets at Punjab National Bank and Union Bank of India sparked concerns about asset quality in the Government-run lenders.
Explaining the rationale behind why a CRR cut is better at this juncture,Chaudhuri said this will help bank’s liquidity,which in turn,will help them lower the lending rates,thus helping the monetary transmission better.
On the contrary,he said a marginal reduction in the repo will not help banks to cut lending rates.
The senior unsecured dollar bond issue,due in August 2017,was carried through the London branch of SBI. The issue was rated Baa2 by Moody’s and BBB- by S&P.
The offering marks the first public sector bank’s dollar bond issuance since May 2011 and the largest single- tranche offering by a Government lender,SBI Managing Director and Chief Executive for international banking Hemant Contractor told reporters.
The proceeds from the bond sale will used to finance the forex needs of the Indian corporates for their overseas plans and a portion could also be used to lend to domestic companies for their domestic needs as well,he said.
The offering was priced at a spread of 375 bps over the five-year US treasury,equivalent to a price of 99.140 per cent and yield of 4.318 percent per annum,Contractor said.
The dollar-denominated issue bears a fixed interest of 4.125 per cent per annum,indicating the lowest ever coupon achieved by a domestic issuer in the US dollar bond market for a five-year tenor.
“We are delighted to see the strong interest shown by high quality global investors in SBI credit. The transaction is a reflection of the standing and reputation of SBI even in a volatile global environment,” Contractor said.
The total order book was in excess of USD 6.8 billion and the issue was oversubscribed 5.4 times underscoring SBI’s good credit profile,he added.
In terms of allocations,Asia-based investors received 47 per cent,while US investors were allocated 31 per cent and European investors the remaining 22 per cent.
In terms of investor type,asset and fund managers subscribed for 49 per cent of the deal,private banks 24 per cent,public banks 12 per cent,insurance funds 12 per cent and public companies subscribed for 3 per cent.