How do you see RBI's rate hike and how will it impact your lending and deposit rates?

Lending rate depends on the cost of funds and there has been a reasonable increase in deposit rates in the last few months, a part of which has been passed on through an increase in MCLR of banks. A part of the increase will be passed on in the coming months. RBI's rate hike will not have a material impact on bank lending rates. It will have a bigger impact on NBFCs and the bond market.

On the asset side, you are looking to change the corporate-retail loan mix. How have things shaped up?

For 2017-18, corporate loans grew 17 per cent, while retail was up 42 per cent. The share of retail loan book to total loan book increased from 20 per cent to 23 per cent. We continue to support and lend to the corporates. During the year, we moved to a target market approach for growth in corporate lending. However, in view of higher profitability on a risk adjusted basis, granular nature of risk in portfolio, increasing consumer spending and our low share in retail lending, we focused to increase the proportion of retail loan book.

Is it also a reflection of the fact that the corporate sector is not borrowing?

Low corporate credit offtake is partly driven by the corporates themselves and it's also driven by our desire to have a more diversified portfolio. We would like to look at corporate exposure of 35-40 per cent. But that may take 18-24 months. Our corporate loan growth has been higher than the average industry credit growth. Lately, there has been increase in capacity utilization in the private sector. Macro-economic indicators point to a pick-up in private investment. Deleveraging of balance sheets of corporates is also happening.

Banking is also a subject function of how the economy is doing. Isn't it also true that in the past four years we haven't seen much improvement in the corporate sector and that is responsible for the slowdown?

I wouldn't fully agree with you on that. There are always some industries that do well and grow. We have witnessed pick-up in the automotive industry, there is very strong growth in pharmaceuticals and IT. I see an equivalent of the Fintech companies in agriculture where a lot of innovation is happening. And it's only a matter of time before these companies gather more scale, more momentum. Further, some of the corporates have been tapping bond market for their credit requirements.

Why is demand from the corporate sector not picking up?

It is not right to say that credit demand is not present. Currently, most of the capital spending is by way of public investment by government in infrastructure projects like roads, highways, waterways and railways. For banks, it is by way of non-funded exposures that do not get reflected in their balance-sheets. In a way, the credit in the balance-sheet is shifted from the books of banks to that of other players.

Things have been getting worse for public sector. Bank chiefs and the government seem to have lost credibility because every quarter you say the worst is over. Do banks really have an assessment of the toxic assets on their books?

The NCLT process being new, is taking some time to stabilize. NPAs have also increased after revised RBI guidelines on resolution of stressed assets in February 2018, dismantling the earlier mechanisms to deal with stress. What these guidelines have effectively done is that they have front-ended the recognition of stress, which would have been otherwise recognized over a period of time. However, this marks the final stage of multi-year initiatives to recognize NPAs. Thus, all of this is purely transitionary in nature where it appears that we have one way flows to NPAs only as against flows both ways. With higher recoveries expected in FY19 on account of NCLT resolution, we should be seeing flows both ways. It seems that we are pretty much at the end of the problem.