'We will try to retrieve some lost ground in corporate banking'
Devjyot Ghoshal / May 13, 2011, 0:45 IST - Business Standard
It’s not easy to single out Pratip Chaudhuri, the unassuming new chairman of State Bank of India (SBI), from the suit-clad crowd of delegates at the Asian Development Bank’s annual meeting, held in Hanoi recently. In an interview with Devjyot Ghoshal, the helmsman of the country’s largest lender outlines his strategy for keeping SBI ahead. Edited excerpts:
There has been the description of ‘making the elephant dance’ with regard to your predecessor O P Bhatt. What will be your set of priorities for taking the bank forward?
It will not be a dramatic shift. At one time, people almost wrote off public sector banks and thought private sector banks would be the banks of the future. Mr Bhatt made a signal contribution in correcting that and in repositioning public sector banks as banks of certain substance.
Simultaneously, one good thing is that we have narrowed the technology gap with private sector players. The 100 per cent core banking has positioned us almost on an equal footing with private sector banks. So, we don’t have the technology handicap.
I think in the last three years, he (Bhatt) also did a good thing by restarting opening of new branches. For 10 years, we didn’t undertake branch expansion, fearing we did not do any recruitment. That vicious cycle was broken. We recruited more people, and that helped us expand our reach.
It was important because most Indian towns and cities were expanding in new areas and our presence was largely confined to the old areas. Unless we have good presence in the new areas, where the relatively young and affluent people who own new houses are moving to, we will be left out in the cold.
But what will you specifically focus on?
There is a certain feeling that we have done very well in retail, home and car loan markets. In home loans, we have become the leader in absolute and aggregate terms. In retail, at least on an incremental basis, we are the leader, or maybe we are very close to it.
But, possibly, we have slightly neglected our corporate banking franchise. Our endeavour will be to retrieve some lost base. Then there are areas we didn’t enter because maybe we thought they were not very important. But from a headline point of view, I think they are important.
What are these areas?
Areas like bond underwriting and distribution. Though relatively small compared to the loan market, it is largely dominated by Axis Bank and YES Bank. We would like to position ourselves in this.
There were some human resource concerns. What is the current situation?
There were concerns in a number of areas. One was the average age. That has been corrected to a large extent with youngsters coming in and more older people retiring. But the kind of people we are getting is important because we also have a rural network. You may get good people but they may not be willing to relocate to rural areas.
And today, banks not only have to deal with deposits and loans, they also have to offer insurance. Our young people need to learn new skills.
What about the status of non-performing assets (NPAs)?
A lot of good things have happened but one area where we have possibly trailed other banks is our net NPAs to total assets. We are higher than the median.
We are trying to put more energy into this. We have put a deputy managing director-level officer in charge of this, expecting a better and faster resolution of NPAs.
Will there be a focus on long-term loan assets?
For a company, if you do working capital lending, the price is ‘X’. To the same company, the price of a term loan is ‘X +’.
In lending, with new regulations, we also have to look at the capital required. Broadly, if you lend to a company which is top-rated, say AA, the capital required is less. But as you go down the credit spectrum by lending to an unrated company, the capital required is significantly higher.
I am saying that to the same AA-rated company, when you lend working capital and when you give a term loan, the returns from the latter are higher. By and large, in India, most term loans are against the security of fixed assets.
With new legislation like the SARFAESI Act, the lenders are not all that helpless.
You get a longer tenure, a higher yield and possibly, at a broad level, the nature of the security is also relatively better.
Before the monetary policy, SBI did say that a rate increase will hit the growth momentum. What is your reaction to the policy announcement?
The governor himself said the choice was between inflation and growth and after considering all pros and cons it was decided to target inflation first. But in doing that they are aware that there is a trade-off between the two and that it may lead to some deceleration in growth.
Will this have any impact on SBI because there has been some concern about margins?
I think it would have a greater impact on the term-loan capital asset funding because (for) working capital people have to go on. Second, on the working capital side, large companies can always resort to external commercial borrowings, which are pretty cheap.
But for a house-owner or a car-owner, it will be different. For example, EMIs of Rs 12,000 and Rs 15,000 are materially different for a middle-class person.
We have seen in the past that if EMIs go up very sharply, there is deceleration in demand. I think a major impact could be in the real estate sector.
What are your views on new banking licences?
We should not be seen as trying to stop others from getting licences. We should not be seen as being protectionist.
But this is slightly unusual if you consider that globally industrial houses are being given banking licences, and as the past bears out, industrial houses have not been very successful in implementing them.
Banks which have been successful are the ones which have been promoted by groups or companies in financial services businesses. And these groups do not have any other allied interests in manufacturing or trading.
We don’t mind other people coming in but the banking industry is already very fragmented. Any bank which is below a certain size will have to struggle, which we have seen in our associate banks.
What are the plans for international expansion?
We pursue growth only if it comes with profit. Growth without profit doesn’t help. We are looking at some jurisdictions. Australia is an important one.
Over the last 5-10 years, there has been a significant increase in the number of students and professionals going to Australia.
In a branch there, you cannot have a retail deposit of less than A$ 250,000, which is a relatively large amount for an individual, especially a new immigrant. We are getting left out of this major segment. So, we are thinking of opening a subsidiary.
Australia, we understand, goes by rules. If you put in $75 million or $100 million, you get a licence for a subsidiary and then you can do branch banking.
Also, in the UK, we have got a retail licence. But to do retail business in the UK is very difficult in terms of asset quality, as most delinquencies have happened in home loans.
We are taking slightly careful steps, but we have plans to roll out about four branches in London.
There is a lot of fascination with Indonesia, that it has good resources and all that, which is true. But that financing can be done from Singapore.
How do you see the international business growing?
We will not measure it in physical terms. For example, to grow physically from $35 billion to $60 billion is not very difficult. Unlike India, where you have to mobilise deposits, there assets are easy to come by and you can pick up wholesale debt.
But the spreads are very thin. Second, our understanding of the risk profile and the risk market may not be very good. Suppose we want to play in the bond market. We must have a detailed understanding of the interest rate movement in those currencies. It takes a lot of expertise to be present in every market, in every sphere.
We will stick to our core competency, which is corporate banking, to the extent that it is useful to Indian companies. Of course we will also do some local financing.
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