Indore: ‘Interest rates have bottomed out’

Indore: Bank of Maharashtra, a pioneer public sector bank of the country is set to consolidate its position in Indore Zone and MP by offering state-of-the-art technology banking and customer centric services. Bank feels that MP has a great potential for banking.

This was said by BoM General manager (credit monitoring) and guardian executive of Indiore Zone, Ramesh Kshirsagar while talking to Free Press on Monday. He was in the city to participate in bank functions. Kshirsagar has banking experience of over 34 years. He has also led bank’s international Treasury division for a long time. Currently, he is looking after credit monitoring, treasury and international. As a banking expert, Kshirsagar expressed his view on banking issues and bank’s expansion plan. Here are some excerpts-

Q. Since you are guardian executive of Indore zone, what are your plans for consolidation of BOM in the zone?
A. Maharashtra is our home state. Out of Maharashtra our bank has strong food-hold in MP. We are proud of our strong presence in MP. While visiting branches and interacting with customers, I received encouraging feed-back. We will try our best to offer best services to them. We have taken several initiatives. Our technology and internet banking is most secured among all public sector banks. Besides, we will offer customer centric services in the state.

Q. Bad loans have risen considerably. In such a condition why bank’s investment division is not devising ways to compensate bank’s growing NPA?
A. The investment pattern of all banks is more or less the same. For the last two years investment made by all banks has led to attractive returns. Bank treasuries earn more profit when interest rates are down. Looking at the current scenario, it seems that interest rates have bottomed out because of increasing inflation and additional borrowing programme. Yield on government coupon has also increased. Hence, earning of treasury has come down. This happens across the country and globe.

Q. What is the percentage of a treasury in bank’s profit?
A. In any bank, Rs 19.15 from deposit of every Rs 100 goes to treasury as SLR. Thereafter 4% goes as CRR. So, out of Rs 100 Rs 24 goes as deposit. After demonetisation, bank’s liquidity has increased considerably as people deposited amount in bulk. Treasury also received surplus fund. It even touched the figure of Rs 8 lakh crore. Now it has come down to Rs 60,000 crore. On the other hand credit growth of banks too has slowed down. Hence, the amount reaching treasury has doubled. The banks are keeping fund with RBI in form of Reserve Repo.

Q. Banks are flooded with fund. On another hand corporate demands are also at its low. Why interest rates are not being reduced to desired level?
A. This liquidity reach bank for a limited period. Banks also know that it’s not permanent. In one and half years the RBI has cut Repo rate by almost 1.50% from 7.50% to 6.00%. Bank’s MCLR (Marginal Cost of funds based Lending Rate, which is a methodology of Reserve Bank of India (RBI) to settle lending rate on loan by commercial banks) has also come down from 10.50% or 9% to 8% or 8.25%. So, this is not correct, banks’ interest rates have come down.

Q. Why interest rates do not follow the suit soon after a cut in REPO rate?
A. The reason is that bank’s deposit side, which we call liability, remains the same. For example, if you deposit Rs 1 lakh for 3 years at the rate of 9% per year interest rate. The MCLR has come down, but we have to pay the interest rate (liability) at 9% per year rate. The interest rate is fixed for that period. So our liability remains fixed, whereas advanced changes in interest rates are implemented across the board immediately. So, on one side is fixed rate and on another it is flexible. Thus, bank’s interest rate percolation takes time.