RBI to pause for now, but 25-bps cut likely in rest of FY17: UCO Bank Managing Director

Saddled with a pile of stressed assets, NPAs remain the main concern for PSU banks. While the RBI moved to plug liquidity troubles for banks in the previous policy, Governor Raghuram Rajan is expected to leave policy rates unchanged this time around. Speaking to Bloomberg TV India , UCO Bank MD and CEO Ravi Krishan Takkar says the manufacturing sector is still under stress.

Are you expecting any particular move in Tuesday’s RBI policy? What’s your outlook on rates for the rest of the fiscal through March 2017?

As on date, the expectations are the RBI Governor would maintain status quo. We are not expecting any further reduction in the rates. What I feel is he would like to wait for some time as the food inflation has started picking up. As far as the monsoon is concerned, although the IMD has predicted an above-normal monsoon, I think Rajan would like to wait and watch how the monsoon pans out before taking a call on rates. Besides, the uncertainty over a possible Fed rate hike is a matter of concern. I am expecting the rates to be maintained in this policy. As far as the entire fiscal is concerned, we do hope to see at least another 25-basis points cut in RBI rates in the second half of the year.

Will a good monsoon give the RBI room to lower rates more than 25 basis points in the rest of the fiscal?

Rate cuts will depend on various factors. It is not just the monsoon. The overall economic scenario, inflation and other things will matter. But we can expect another 25-basis points cut in the second half of the year.

The wholesale price index has turned positive after 17 months and food inflation has been a bit sticky. What’s your outlook on the inflation situation?

As far as the overall inflation is concerned, it is still below the benchmark. The food inflation, however, is a cause of concern, especially the rising prices of pulses. If you see the Indian economy, other than wheat and rice, pulses are witnessing a wide variation in prices as the area under cultivation is not much.

Adverse weather conditions affect pulses production. So, hopefully, if the monsoon is good, food inflation should come under control. And if the food inflation comes under control, the overall inflation is not much of a concern as on date. So that should help in further bringing down the policy rates.

Since the start of the rate-cut cycle in January 2015, we have seen the policy rates go down cumulatively by 150 bps. How much have you been able to transmit it down to your customers?

As far as our lending rates are concerned, including the marginal cost of funds-based lending rate (MCLR), we have been to pass almost 1 per cent (100 bps) to the customers since April. We are evaluating rates every quarter. On July 1, we will be reviewing MCLR again. It will depend on various factors. I think we might pass on more benefit. I can’t predict anything now, but hopefully if things move in the right direction, we can further reduce lending rates.

The GDP data that came out at the end of May showed 7.6-per cent expansion in the economy. There is still stress in many parts of the economy. How is it panning out as far as credit growth is concerned for UCO Bank?

If you see the GDP data, we really have good growth numbers — 7.9 per cent in January-March quarter and 7.6 per cent for the full fiscal year FY16. That is a very good sign. The only thing is: robust growth is coming from some sectors — consumer goods and services sector. As a banker, we will be more concerned if stress is added in the core (infrastructure) sector. There has been some improvement in road and power sectors. But manufacturing sector is yet to come out of stress. We are waiting for the private sector to invest in new projects and kick-start the capex cycle. And once that happens, I think we will be able to sustain the growth momentum.