ON RATE HIKES. WILL THEY BE PASSED ON?

Pratip ChaudhuriPratip Chaudhuri: Any hike by the Reserve Bank of India has to be passed on because any input prices rise will have to be reflected in the asset side, in terms of returns.

Chanda Kochhar: It will depend on the liquidity situation. In the last two years, all rate hikes by RBI were passed on by banks. But the last one has not really been passed on because of low credit offtake and higher deposit growth rates. The big thing to watch in the coming two months will be liquidity because we are entering the festive season, the rupee-dollar is moving in a particular manner and it is having an impact on rupee liquidity. There is a lot of borrowing in India from the European banks. There could be some liquidity crunch on that account as well.

Gunit ChadhaGunit Chadha: Historically, the second half of the financial year has always been worse than the first half. Some of the factors that are in the play right now, are an increase in government borrowing, reduced dollar liquidity and cutback in the flows into India. Then, there is the whole issue of transmission. I think there is an inevitability that banks will have to transmit some of this increase into the system.

M D Mallya: Credit demand has continued to be a little muted. We are still to see the normal increase after the onset of the festive season, implying that credit delivery has not taken place substantially.

As of now, there is no visible stress on the retail portfolio because the car loans on fixed rates. In case of floating rate loans, tenures are being increased. Chadha: Monetary policy is not so much of an issue.

RISING DEBT RESTRUCTURING

Chaudhuri: Three years ago, there was a situation when the CDR committee said that we are not having any more patients in the ward, so we are closing it down. Now, there is a complete reversal. I think many companies took loans and agreed on accelerated terms of repayment – in five to six years. But they have discovered lately that they need a longer term to repay.

Kochhar: While the number of medium-sized companies coming in for restructuring has gone up, I think the impact is going to be much less than the previous cycle. This is because the value of companies coming up for restructuring are medium and not really the large corporate houses. So, in value terms, the banking sector is actually going to be less impacted than in the 1990s.

Sharma: If you have an environment where rates are going up and growth is slowing down, then there is going to be stress on marginal companies. So you could see both sides of the cycle. You could see general restructuring where companies will come out stronger and you could see marginal companies which are going to be stressed.