`Due diligence on banks must before depositing' (Businessline) Rukmani Vishwanath N.K. Kurup Mumbai , Aug. 15 OVER the next few months, the banking sector may well have to fasten its seat belts to ride out the rough weather in the wake of rising inflation, hardening of interest rates globally and several other trying issues. Industry experts contend that among the major challenges confronting the banks are maintaining profitability, deploying credit and retaining depositor confidence. Mr A.K. Purwar, Chairman, State Bank of India, responded to some of these in a free-wheeling interview with Business Line. The following are the excerpts: What can banks do to retain the confidence of depositors in the wake of run on some banks? Safekeeping of money is one of the primary functions of banks. Having said that, depositors must learn to be more discerning about where they park their funds. It is necessary for the depositors to do some due diligence. It is advisable to study the bank's balance sheet, check its asset quality and risk management systems, and ensure that it complies with prudential norms. One must not place deposits with any bank just on the lure of so-called attractive interest rates. Depositors, who do so without evaluating other factors, run the risk of losing their principal. Banks are getting themselves rated. Recently SBI lowered deposit rates by 25 basis points in two buckets in short-term deposits, a sudden move when inflation had topped 7.51 per cent. What prompted the bank to lower interest rate? In these two particular buckets, the interest rates were not aligned with the market rates and therefore, the bank decided to align them. It is also true that we have been observing a lot of deposit inflows, particularly short-term, in these categories. This has been happening consistently for some time now. So we took the step to realign the rates. After all, we have to manage our balance sheet. What are your views on the surging inflation? How long will it be before you raise interest rates on deposits, or lending rates? This is a very unusual situation. The rate is very high. A lot of factors have combined to result in high inflation. I am sure the Government will take suitable measures to curtail price rise. A high rate of inflation is worrisome. However, if it is going to continue, then we can be sure that RBI and the Government will take some steps; and based on their responses we will take a view. Will rising inflation in turn impact corporate credit off-take? Is not that going to be a challenge for banks? For the last three years, SBI has remained greatly focused on retail side. In the process, our dependence on corporate lending is not very substantial. Having said that, the resources in SBI currently are very large and therefore, we also have to have credit deployment. On a year-to-year basis SBI has grown by 20 per cent in June. Personal advances, retail, agriculture, SMEs and infrastructure have basically driven this growth. I do not foresee much impact of inflation on retail, SMEs or agriculture. But there could be some impact on corporate lendings. As far as housing loan rates are concerned, we are comfortable now. We will review them and will watch the market very closely from now on. A number of private banks have applied to the RBI for special permission to lift the ceiling on capital markets exposure. What about SBI? We have enough cushion at the moment. Whenever that extra cushion gets utilised, we may consider the option. But our focus is not on capital markets. Our focus is on retail. We are coming out with some products for SMEs and even for infrastructure lending. What are SBI's plans for agriculture this year? We have established an agro-business unit within the bank, which is going to focus on the entire value chain of agriculture that will establish backward linkages, i.e., networking of farmers with suppliers of inputs such as seeds, fertilisers, agrochemicals and forward linkages - covering people such as processors who buy products. We are now fine-tuning the systems and for this purpose we are in the process of appointing 500 agriculture officers. In the first four months, SBI disbursed over Rs 1,000 crore to the agri sector. What are the bank's plans for international expansion? We are still scouting for acquisitions in Asia. In West Asia, we are also looking to open branches in Qatar, Dubai and Abu-Dhabi. Wherever we get licenses we will set up operations. Currently, we have branches in Bahrain and Oman. We are interested not only in the NRI market, but also in the local economies that are doing very well. Are you still looking for joint venture partners for SBI Caps and SBI Factors? Yes. SBI has set up a lot of good businesses. But our experience has been that in all our non-core businesses wherever we had a tie-up with a global partner, we did very well.