SBI Chairman CS Setty said discretionary credit demand will likely moderate as interest rates rise. The bank expects a 50 basis points repo rate hike in December. Setty said, "Interest rates definitely will influence the composition as well as the quantum of credit demand." He sees no major retail asset concerns.
Synopsis
SBI chairman CS Setty expects higher interest rates to moderate credit demand in rate-sensitive sectors, particularly discretionary spending. The bank forecasts another 50 basis points repo rate hike in December, followed by a pause. Setty said he sees no system-level concerns over retail asset quality, though highly leveraged households may face pressure.
Mumbai: Rate sensitive sectors, particularly the discretionary spending related borrowings probably would moderate due to higher interest rates, State Bank of India (SBI) chairman CS Setty said.
Discretionary consumption demand to be impacted as SBI forecasts another 50 basis points hike in repo rate in December, Setty said at a media event.
"Interest rates definitely will influence the composition as well as the quantum of credit demand. Not necessarily immediately, (but) impact as we go forward.
Rate sensitive sectors, particularly the discretionary spending related rate borrowings probably would be moderated. But I would like to differentiate between the weakening credit cycle and the moderation in credit demand. I think we need to distinguish that," Setty said.
Setty said that the country is entering the rate hike cycle with a robust growth rate projection of 7.1% which means sustained credit growth will be coming from the real economy's demand for credit.
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Setty said SBI expects another 50 basis point hike in December after which the rate cycle will pause a bit.
Replying to a question on asset quality on whether the higher rates could lead to defaults Setty said he does not expect system level concerns.
"I don't think the system level concerns will be there, but there would be a concern in terms of individuals and households who have higher leverage now and I don't know how much they can actually take absorption of the high interest rates. But broadly, from a system level perspective, I don't think we should be really worried about the asset quality on the retail front," Setty said.
He however said that higher rates will not mean getting deposits will be easy for banks as there is only so much the rates can propel customers.
"What we also have seen fundamentally, (is that) the shift is not only happening from the bank deposits to other alternative instruments. Within the bank also, you see the composition. The movement from savings account to fixed deposit is so easy.
Ease of doing business also is moving the structural composition of the deposits. But I believe that the adequate liquidity, what RBI has been supporting, and we have seen, market has removed the rate-driven composition from the deposits," Setty said.
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