The head of the country’s largest bank, State Bank of India, on Thursday ruled out any possibility of interest rate cuts in the near term, citing a sharp rise in bond yields and the fear of hurting depositors’ interests.
Indian Bank managing director and CEO Kishor Kharat seemed to back the SBI chief’s assessment when he said that banks could provide funds at lower rates to start-ups if the government provided a subvention on such loans just as it did for farmers.
“If I have to bring interest rates down, I will have to hurt all the Buzurgs (senior citizens)… And that is my problem. Because If I don’t charge my borrowers, how do I pay my depositors?” SBI chairman Rajnish Kumar said, when asked about the industry’s hopes of lower interest rates at a ‘mentoring summit’ in the capital.
Later, speaking to reporters, he said it seemed that the current cycle of rate cuts was over. “With the bond yields having gone up in the recent past, I think the headroom available for a rate cut for both depositors and borrowers is no longer there. Unless you cut deposit rate, you can’t cut the lending rate. For the time being, I think we are headed for a much more stable interest rate regime,” Mr Kumar said.
Cheaper funding
Mr. Kharat acknowledged the need to provide cheaper funding for startups and entrepreneurs. “We as a banker will definitely provide the funding, but the development of this segment is actually the responsibility of the government, industry and banks. Bankers will provide funds if the government also thinks of giving some subventions for the startups, similarly on the lines of the subvention given for farm loans, I think affordable rate of interest can be offered to startups,” he said.
Mr. Kumar said that the usual notion of expecting a spurt in capital spending by firms as the key to economic revival needs a rethink, and job creation in both manufacturing as well as services sectors is likely to see lower growth rates due to the advent of technology.
“One thing we have to consider today is that the growth particularly of those white collar and blue collar jobs in the manufacturing sector, those jobs are now not growing at the same pace because of the simple reason that there is a lot of automation and efficiencies have been adopted,” the SBI chief said.
“That’s why our typical sense of that growth in the manufacturing sector driven by capex, driven by the investment – on that, I have much less belief. The share of the manufacturing sector in the GDP over a period of time has also come down and is stuck at about 15% of GDP,” Mr.Kumar said.
In the services sector, including banking, artificial intelligence, robotics and other technologies were finding traction, he pointed out.