Post 9/11, Rs 30,000 crore net increase in deposits: Ashwani Kumar, Dena Bank

In a chat with ET Now, Mythili Bhusnurmath, Consulting Editor, and Ashwani Kumar, CMD, Dena Bank discuss macro cues. Edited excerpts

Let us talk about this move to suck out surplus liquidity by the RBI, a lot of brokerages are talking about how the banks will see an impact on the back of this but they will factor this in while making the cuts to MCLR. Your views?

It is a very unkind cut to the banks as far as the RBI is concerned. It is basically a kneejerk reaction on the entire demonetisation thing. The RBI has clearly been found wanting on the operational side where it has not been able to provide the currency notes as quickly and as efficiently all over the country as desired. It also should have forethought that there would be this kind of surge in deposits. This kind of kneejerk reaction is really unfair to the banks because the banks have no option, they cannot refuse to take deposits. Whatever a person deposits the banks cannot turn them away, your pay even if it is in the savings bank deposits you are paying a minimum of 4% whereas on the CRR that is impounded you are getting zero.

So, this is a very unkind cut to banks particularly public sector banks which have borne the brunt of the deposit mobilisation effort. In fact, there was a feeling that because deposits will increase and these are cheap deposits, banks will be able to lend liberally. On the contrary, banks are not going to be able to lend. So on the one hand, the government has been urging banks to lend and on the other hand they have taken away the means to lend and have actually penalised them by not giving them anything at all because CRR does not yield any return at all, whereas on savings banks you will have to pay interest.

Assuming that the bulk of this money has come into savings bank, it is a particularly harsh move as far as the banks are concerned. Of course it is little unfair to ask a banker to comment on the regulator. So I do not expect perhaps Mr Kumar to be harsh as I am but do you think that this is a slightly unkind cut?

Currency is back to its losing ways right now and we are staring at levels close to those lows that we have witnessed last week. We saw a quite a bit of a thrashing. What is the call on the currency and where it could be headed?

Mythili Bhusnurmath: Well the currency certainly is weakening and it has been said that the rupee would reach 70 level. Clearly there was a case for weakening and in any case the rupee was overvalued. The signs that you get from the US is that you are going to have a much more protectionist economy, Trump is going to spend on infrastructure etc, so the dollar will strengthen. It is a combination of the underlying weakness of the Indian economy in terms of the rupee valuations, the strengthening of the dollar and now : demonetisation. However laudable the objective is, demonetisation has created a great deal of disruption in the economy so suddenly there is a view that the GDP growth this year will not be near at 7.8%-8%.

We will find that being a little exaggerated short term. Medium to long term, the economy will recover. Perhaps there is a necessary pain but may be it could have been managed from the central bank of India.

Mr Ashwani Kumar, is it very unkind of me to ask you to comment on the regulator’s actions, but do you think the Reserve Bank has been found wanting? It could have been managed much better both as far as the operational areas are concerned. Also on CRR this kind of a kneejerk reaction is going to hurt banks much more than perhaps was necessary were there better alternatives Mr Kumar?

Ashwani Kumar: Regarding RBI action, they have taken this impounding of CRR because of various constraints. May be reverse repo securities were not available or market fund issuance was not there but as far as Dena Bank is concerned, we are fortunate enough that we did not have any accrual in NDTL from 16th September to 11th November. So we are not going to get hit to that extent but yes banks whose funds are getting impounded and they have to pay interest on savings banks or FD whichever funds they have mobilised, will definitely suffer some interest loss on those.

Mythili Bhusnurmath: Let me just understand you correctly. You said for Dena Bank as a whole, there has been no increase no increase in NDTL from the date in September till 11th of November? Is that correct? Have you crosschecked the data? It is little difficult to accept that there has been absolutely no increase in NDTL. Of course, the massive increase would have happened after 9th of November but from 16th of September till 11th of November is a fairly long period and to except that a bank of your size is not a very small bank had no increase in NDTL is a little difficult. How did that happen?

Ashwani Kumar: No, no we were net borrowers from Reserve Bank. So there is no incremental increase in NDTL which would affect impounding of CRR as such. I cross checked the figures, yes.

Mythili Bhusnurmath: Why were you borrowing from Reserve Bank of India because most banks were saying that there were no lending opportunities? What were the funds constraints that made you borrow from Reserve Bank of India?

Ashwani Kumar: This is how we were managing our asset-liability position. So there is nothing like what was reason. This is how we are managing it.

Mythili Bhusnurmath: And what has been the kind of increase post 9/11?

Ashwani Kumar: Post 9/11, there is increase of Rs 16,000 crore deposits have come and roughly Rs 2700 crore have been withdrawn. So net about Rs 30,000 crore increase is there.

Mythili Bhusnurmath: So assuming that the RBI is doing this to manage liquidity, I think there is a fair chance that this measure will continue because they have said 9th of December they will review but 9th of December is reporting Friday and as CRR is maintained with a lag, chances are very high that if they felt the need to impound the deposits even before the demonetisation scheme came, chances are certainly very high that this measure will continue. What kind of an impact will that have as far as your banks earnings are concerned and the banking sector in general?

Ashwani Kumar: No this is a hypothetical question that if RBI impounds further CRR, what is going to happen? There is no point in discussing a hypothetical question. Let RBI come out with the guidelines and the policy, then we will discuss on that.

Mythili Bhusnurmath: And what kind of treasury profits were you hoping to see from the dramatic decline that we saw and also there has been equally dramatic increase in the yields, almost 8 bps. How will that impact a bank like yours in terms of its earnings? Were you looking forward to treasury earnings which suddenly seemed to have disappeared?

Ashwani Kumar: No, there are good treasury earnings so far but short term there is a rise about 8 to 10 bps in the yields, so that may impact earning for a short period but let us see how the things pan out during the remaining period. It is a very short period where you want a long term view of what is going to happen. But if the yields go up, earnings of course come down.

There is news just coming in right now that the Reserve Bank is going to conduct an overnight variable repo rate auction for a notified amount of about Rs 1000 billion today if I am not wrong which is in today’s session. Obviously the RBI is doing all it can to infuse liquidity. What are your thoughts on this move?

Mythili Bhusnurmath: Well I think there are lots of needless flip-flops from the central bank. I think a central bank needs to take a measured view, measure position after taking a very careful informed view. So clearly the RBI’s reaction on Saturday was a knee-jerk reaction. They had not thought this through and now you are going to do the opposite. So I think one requires from the RBI some amount of stability, not this kind of flip-flop. I am very disappointed in the Reserve Bank of India.

What are your thoughts? Did the RBI have limited room to work within and therefore would we see a series of these measures or are you in sync with Mythili’s view and two, specifically on this move as well?

Ashwani Kumar: No first, I have not read anything about the current move. So, I will not be able to comment. But RBI takes its own views. It has its own way of working, so it is better that we do not comment on the regulator, what moves they have done and why they have done. They must have taken a very calibrated action and these events happen once in a lifetime. So, to say that the move is incorrect, I do not think would be proper because these are situations which have to be handled as they develop.

Mythili Bhusnurmath: What is your view on the rupee, do you expect further weakening of the rupee also or do you think the rupee will stabilise and what has been the outflow on the FCNR (B) from your bank?

Ashwani Kumar: The rupee will find its own level. The Reserve Bank of India has said it will only enter the market to check volatility. I think there is some further scope for rupee to weaken.