No bubble in retail loans: SBI chief Arundhati Bhattacharya on Raghuram Rajan remarks

Mumbai: Within days of Reserve Bank Governor Raghuram Rajan expressing concerns on banks' aggressive retail play at the cost of infra financing, SBI Chairman Arundhati Bhattacharya Monday said there is no bubble-like situation in the consumer lending segment.

"I don't think we are in a bubble territory as yet, as long as we continue to maintain our good underwriting standards and also get the help of digital (tools), which will enable us to have an even better picture," Bhattacharya said.

She was speaking in response to a question on whether banks are heading towards a possible bubble in the consumer financing segment.

Stating that there is a lot more that can be done in the retail sector, she said, "Retail loans to GDP (ratio) in our country is amongst the lowest in the emerging markets, at less than 10 percent. In Malaysia, it is in 30-35 percent and in developed nations it is still higher. I think we have still lot of uncovered space to grow."

Addressing the annual convention of the Indo-American Chamber of Commerce here, she said the median age in the country is 26.5 years and these are the people who need loans to fulfil their aspirations.

"Therefore, I think what is being done now is to fulfil those unmet demands," she said.

Last week, outgoing Reserve Bank Governor Raghuram Rajan had raised concerns over banks, especially state-run lenders, shunning project loans and aggressively targeting retail borrowers.

Talking about the upcoming redemptions of FCNR-B deposits, Bhattacharya said it will put pressure on liquidity.

"Some amount of liquidity will go out with the FCNR redemptions. So, it is important for us to have comfort on liquidity side," she said.

She said the RBI's stance of maintaining liquidity at neutral level is good and needs to be maintained.

"I hope the new governor Urjit Patel will retain the stance (to keep liquidity at neutral)," she said.

When asked if FCNR-B outflow would lead to changes in lending rates, she replied in the negative.

"Lending rate is a function of both liquidity as well as credit demand. I really do believe until and unless the credit demand picks up, rates will not come down. I do believe demand will have a big role to play in the way the rates come down," she said.

She said banks are not in a position to compress NIMs because they have to make provisions.

"I believe there will be a slow coming down of rates, it is happening already. It is not catching people's attention as it's happening slowly," Bhattacharya said.

She expressed confidence that banks will resolve the problem of stressed assets, which ballooned to 7.6 percent in March 2016 as compared to 5.1 percent in September 2015.

"We started these (NPA resolution) conversations about a year back and these things take time to do because people need convincing, they have to understand what is the business case. But I think we are slowly getting there," she added.