This week in banking: SBI cuts deposit rates, RBI cuts repo rate and NPA troubles continue – Money Perception

Banking sector in this week was all about interest rate movements with the country’s largest bank State Bank of India cutting deposit rates on savings accounts for the first time and with the Central Bank cutting key policy interest rates to lowest in over 6 years.

In a lighter vein, we also saw a new bank come up in the name of State Bank of Tomato. Given the rising tomato prices in the country, the Opposition party, Congress, chose a unique way to protest against the government.

Next week, banks would be deciding on their interest rates and a number of bad loan accounts, including Videocon Industries and Jaypee Infratech, would be pulled up by banks and tried by the National Company Law Tribunal (NCLT), respectively.

Interest rates

In a landmark move, SBI reduced interest rate on savings deposits for the first time below 4 percent to 3.5 percent on deposits up to Rs 1 crore, while the Reserve Bank of India (RBI) cut its key policy rate to 6 percent, lowest in 6.5 years.

While the RBI action was satisfactory, the SBI move was met with much hue and cry, with depositors taking to social media platforms to voice their displeasure. However, market participants said that the move was a calculated and a necessary one.

Both the rate cuts may drive other large banks to further cut rates, with which customers may benefit from lower loan rates but also get lower interest on their deposits parked with the bank.

NPA trouble

In a major reform passage, the Lok Sabha cleared the Banking Regulation (Amendment) Bill, 2017, which replaced the Ordinance to resolve the non-performing assets (NPA) problem.

On the action against defaulters, SBI ordered a forensic audit of Videocon Industries’ account to investigate whether the company stumbled because of tough business conditions or financial mismanagement.

In order to tackle the bad loan menace, on the monetary policy day, RBI said it will constitute a task force to suggest ways of tracking the quality of credit in a better manner as Indian lenders battle mounting non-performing assets (NPAs).

Bank results

On the financial results, public sector banks Punjab National Bank, Andhra Bank, UCO Bank and private lender Ujjivan small finance bank announced their results during the week.

PNB posted a 12 percent gain in its June quarter net profit at Rs 343 crore but its asset quality worsened as its net NPAs rose to 8.67 percent against 7.81 percent in the previous quarter.

Public sector lender Andhra Bank posted a 14 percent rise in net profit at Rs 40.42 crore for the first quarter ended June even as its asset quality deteriorated to 13.22 per cent of gross advances as on June 2017, up 10.30 per cent a year ago.

UCO Bank said its net losses widened to Rs 663 crore for the first quarter ended June 30, as asset quality deteriorated substantially to 19.87 per cent of the gross advances as on June 30, from 17.19 per cent at the end of June 2016. Gross NPAs were 17.12 per cent as on March 31, 2017.

Ujjivan Financial Services, promoter of the small finance bank, reported a net loss of Rs 75 crore in the first quarter ended June 2017. But it expects the impact of demonetisation to completely wane away in the next two quarters.