India's top banker, SBI Chairman CS Setty, reacts to the RBI's status quo monetary policy. He tells Latha Venkatesh supply disruptions due to the West Asia war can be handled but the increase in input costs is a "major challenge" for the economy at large.
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Questions asked in this interview
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0:08Do you think that growth volume credit growth, which has been your strong point, will be maintained in FY 27, 15% thereabouts?
3:06Are you expecting that the best of credit quality is over and now we will start seeing it climb?
Welcome back to our monetary policy special. The governor announced a status quo policy as far as rates and stance were concerned, but there have been sharp revisions to growth and to inflation. I'm being joined by the SBI chairman, Mr. C S Setty. Mr. Setty, thank you very much for your patience and for joining us. What do you make of this assessment of the economy? It's not a very negative assessment for the first half of the year compared to what we were previously told. The growth rate has come down by about 20 basis points. Do you think that growth volume credit growth, which has been your strong point, will be maintained in FY 27, 15% thereabouts?
First of all, thank you, Lata. It's good always to interact with you. The broad assessment that has come out of this monetary policy announcement is that there will be definitely the primary as well as second order impacts of the West Asian crisis that is getting reflected in the slight moderation in the growth as well as inflationary expectations which are building up now. But it is also important that most of the effects would be more pronounced if things linger for a long time from Q2 onwards. If you see the inflation also is projected to go up from Q2 onwards. But I think there definitely would be some impact on the growth rate, which I agree with the forecast, the broad assessment. As far as credit growth is concerned, it's a function of the macros. The banking system has been on the growth path. Credit growth has been robust. We have not seen any impact in the last quarter broadly in the banking system. Q1 generally may not be a great indicator because it is generally a tepid quarter for credit growth. So we need to see Q2 and Q3 how the credit growth is going to play out. There is an impact on many of the sectors, particularly those dependent on gas supplies. We have seen some of the SME clusters being impacted on account of availability. So what I understand from many of the industry players is that supply constraints probably will be addressed by moving from one source to another. But the cost-led inflation is a major challenge and may probably impact the overall consumption sentiment. I think we need to be watchful on that. But broadly at this juncture, let's wait for one more quarter before we take a call on what kind of impact will be on the credit growth.
No, I take your point on prices being likely to be higher because there were several industrialists who spoke to us over the last few days and they said, 'We are ready to buy gas at any price.' Because they just want their paint shops to go and their autos to hit the road. So there will be a price impact. But Mr. Setty, what about credit quality? You know, even if there was stress already, you're not going to know it in 30 days, but you will know it in 90 days. It will show up in Q1. Are you expecting that the best of credit quality is over and now we will start seeing it climb? I mean credit cost.
First of all, we believe and let's hope that this disruption will come to an end as soon as possible. This is definitely a good positive development. But the disruption of this level would impact the businesses. And we hope that there will be statutory, fiscal, as well as regulatory support coming. We are engaged with the government of India as well as RBI to see that some of the support, the cash flow support, as well as regulatory forbearance can be given. At least we can prevent the immediate impact while the long-term impact would have to be addressed structurally. Whether we can provide solace in terms of additional financing the way we did during the COVID period. We got a very positive response from the government of India on that. We are discussing with RBI on that. And on the regulatory measures and the relief measures that RBI has given on the tariff-related regulatory measures, as you are familiar, they have given those measures during tariff issues and they have extended further beyond 31st March. And what we are now seeking is that there should be some relief, a broader relief which should be available to everyone because it is very difficult to say who is impacted by the West Asian crisis and who is not. I think hopefully there will be some measures from the RBI. They are also looking at the developments. The first thing I would expect is government of India's support in terms of the emergency credit line coming up soon, followed by some regulatory forbearance. That is something the banking industry is seeking.
Okay. That's fair since this is a sudden and unexpected shock and not expected to linger, not a structural problem. So would you have all made any calculations that you can share on what may be the hit of this sudden reduction in arbitrage positions that the Reserve Bank ordered on March 28th? There would be marked to market losses. Any numbers you'll have come up with?
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