Mrutyunjay Mahapatra, MD & CEO, Syndicate Bank, has been a key figure in the Indian banking sector for a long time. Mahapatra played a significant role in the digital transformation programmes in SBI prior to joining the Syndicate Bank.

Speaking to CNBC-TV18, Mahapatra talked about various issues currently linked to India’s banking sector. “The deposit rates are likely to go up in the short-term and the yield curve is likely to remain inverted for some time to come,” he said while speaking about the credit-deposit ratio. Here's the full transcript of the interview:

Q: Will the rate cut was done by the RBI get transmitted to the system and how do you see the cycle pan out? Should we expect a lot of rate cuts going ahead?

A: The monetary policy stance has been modified from calibrated tightening to neutral and in yesterday’s meeting governor mentioned that like any other Central Bank anywhere in the world the monetary policy whatever is the stance taken should quickly get transmitted on the ground.

So there was an interaction with scheduled commercial banks in understanding why there is a lag between monetary policy pronouncement and actual transmission to the ground sector. So, to that extent, there were various opinions that were proffered and it was mentioned depending on the asset-liability profile of individual banks it will get transmitted over the next few months.Q: What is your own sense, the credit-deposit ratio in the system itself is skewed in favour of credit and several bankers said that they are hungry for deposits, the credit-deposit is even over 90 for specific banks. So in your sense realistically if everybody is going to run after deposits will there be a scope to cut?

A: My own sense is that there will always be a pressure in the last quarter on deposits because one, currently there is pressure since credit growth is far ahead of the deposit growth and for deposits there are a large number of competitors including mutual funds, small saving instruments etc. and there is also rate kind going up because many of the banks because of CD ratio climbing up are covering up.

So, the deposit rates are likely to go up in the short-term and the yield curve is likely to remain inverted for some time to come.

Q: What is your sense, can the cuts come in after April, after and April cut because usually, it is the slack season also?

A: The government has always been looking at growth which is predicated on interest rates moderating. Now RBI also during the last MPC has taken a stance that it is time to give that signal to the market and for this, they have lowered the repo rate. Now all of us in a meeting, we mentioned that deposit rates, especially the savings bank rates and the other instruments that are the main basket of determining the marginal cost of funds based lending rate (MCLR) has very low weight on the repo rate. So, as a result, the transmission to what extent it will happen will be determined by a respective asset-liability committee (ALCOs) which are coming up between one to four weeks’ time and that is the timetable.

Q: Did any of you raise in the meeting the competition from government schemes – the EPFO yesterday raised its return by 10 basis points, they are giving 8.65% now, we don’t know about other small savings instruments but banks are competing with those instruments also given that they have not cut rates, do you really have a chance? Do you see any banks cutting deposit rates up until March?

A: In my view it is difficult thing because all the banks that were holding a little bit of excess statutory liquidity ratio (SLR), which they could have used under the repo window and the OMO window to get good liquidity back, I think they will be reaching nearly the exhaustion of that window and as a result they will come back to the market and depending on which ALM bucket they are short, they will be raising the deposit rates.

So, I don’t see in the immediate future deposit rates really coming down.

Q: The RBI does seem concerned about loan against pledged shares given by NBFCs. Did any of that come up in the discussion that banks had with the RBI?

A: During this discussion, this was a single theme agenda, it was only transmission efficiency. RBI always have said that they will not go beyond this theme and in this meeting what we discussed was that if the monetary policy exercise is such an elaborate and research-based exercise, the RBI governor and the deputy governors wanted to know from larger banks as to what are the reasons why it is not efficiently getting transmitted – that was the limited agenda.

Q: You got a capital of Rs 1,600 core, how just that change life for you. Will that gives you any elbowroom for rate cuts or will that give you better room to provide and find money for growth?

A: It’s a proactive and positive step on the part of the government to induct capital to make the shocks that are likely to come.

We are one of the banks which are relatively stronger among public sector banks so we have got nearly the least amount of capital. We were banking on recoveries and as well as incoming employee share purchase scheme to stay within the regulatory threshold.

Now, this capital will definitely help us in being better prepared for anything like the NCLT recoveries, if they do not come up or there are delays or something like that and if there are any other shocks we are well-prepared and this will also provide a good kind of support towards our growth capital.