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Banking sector has capability to meet credit needs for 8% GDP growth: Rajnish Kumar, SBI

ET Now|
Updated: Sep 30, 2019, 08.04 PM IST
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I am very hopeful about revival of private sector capex: Rajnish Kumar, SBI
I am very hopeful about revival of private sector capex: Rajnish Kumar, SBI

Highlights

  • SBI credit cost should settle anywhere between 1.2% and 1.5%
  • Ideally credit cost should be below 1%. But we have a lot of social banking obligations
  • I am very hopeful about the revival of private sector capex.


There is absolutely no case for merger of SBI with YES Bank or Jammu & Kashmir Bank or anything else, says Rajnish Kumar, Chairman, SBI. Excerpts from an interview with Nikunj Dalmia of ETNOW.


Nobody is using the word boom, nobody is using the word doom, but everybody is using the word gloom. If you have to analyse the economy from your standpoint, especially considering the high frequency data, the retail loan which you are doing, auto sales, how would you map the big picture?
It is all about the sentiment and the fact that there is a slowdown in GDP growth. All those numbers speak. One is that everything gets measured in relation to the expectation. In a country like India, our expectation has been built around the fact that we will grow 8% and above. That is a legitimate aspiration also because in order to remove poverty in this country, we need to grow at that pace. Most of the time we get compared with China, which grew faster than 8% and in a short period of time. There has been a remarkable improvement as far as poverty alleviation is concerned in China. So, our benchmark is at 8% and above. If the economy in one quarter or in the last six months has slowed down to 5%, that means it is not meeting that aspiration and that is where the negativity has come in.

There are many positives in the current environment; one is of course that after the corporate tax cut, the mood has suddenly become very upbeat. Second is that the monsoons have been good. They may not have been even but the big worry at one time was that we are going into a deficient monsoon or drought situation and now it has gone more towards excess side. Third is we all are in the festival season and so we should all be cheerful.

Also, the government has announced many other qualitative measures. We should keep in mind that on macro front the situation is not bad, inflation is controlled and foreign exchange reserves are more than adequate. The external debt is very much under control as well. In such a scenario what needs to be done or something which was a missing piece was private sector investment or private sector capex which needs to be revived. The latest announcement about the corporate tax rate cut has improved the business sentiment and I am very hopeful about the revival of private sector capex.

Let us assume we are on course to be a $5 trillion economy by 2024. In that case, the financial sector will have to do all the heavy lifting. Private banks, SBI would not lend beyond 20-25%, NBFCs do not have money to lend. Where will the credit get created?
If your economy has to grow at around say 8%, at one point of time, the multiple was around 2 and that means 16%. Now the multiple has come down and my analysis is it has come down because the services sector is growing faster than any other sector in the country. While the services sector consumption of capital is not huge, the capital consumed by the manufacturing sector is always huge, very significant and that is why we are seeing some corrections there.

Otherwise, the banking sector has the capability to meet the requirement for credit for growing GDP at say 8%. There is no shortage of capital, no shortage of liquidity. Even the public sector banks (PSBs), after the infusion of capital in the last two years and all the steps which the government has taken around their functioning and governance, will be in a much better position to lend.

SBI has no issue and most of the private sector banks are showing decent growth. You will also see an improved flow of credit to NBFCs also because of measures taken by RBI and the government which are solvency related and individual entity level issues. These need to be sorted out quickly so that the overall confidence in the NBFC sector comes back.

I picked up a buzz earlier that State Bank of India and Yes Bank could be merged. How should one react to this buzz?
I do not know from where these things come! This is all imaginary, number one. You are talking about Yes Bank; some time people say J&K Bank and then somebody will name other bank. But the fact of the matter which I have clarified several times is that the State Bank is already too big with 23% market share in deposits and 20% share in loans and advances. We will do our normal business.

So can we say that State Bank of India will not be merged with any other private bank or PSU bank?
There is like absolutely no case for that because from a systematic perspective also we should not do that. Even today, after the announcement of mergers and consolidation of PSU banks, the next big bank will be one-third of State Bank of India. Right now the second largest bank is one-fourth. We do not need SBI to have a 26% or 27% share. We we maintain our market share at the current levels and others grow, become stronger, become more efficient, acquire scale and be a good competitor in the market. That will be a very healthy banking industry rather than merge Yes Bank, J&K Bank and XYZ with SBI. I do not have the appetite to take over any bank. Second, from systematic risk perspective, no regulator or government would like to do that. But if people still believe it, then what do I do? But nothing of this sort is on the agenda.

The moot point is tax cut. In FY20, do you think the benefit of tax cut for State Bank of India may not be large because of a deferred tax liability?
That is true. We have deferred taxes, not deferred tax liability. So first we have to exhaust that DTA and then the advantage of corporate tax cut will come to State Bank of India.

At your last press conference, you said that you are looking up to God and hoping for recoveries to happen. Has God answered your prayer in this quarter?
It is not an instant noodle. In old times, our rishi, munis (sages) used to do tapasya (practice austerity and meditatation) for a very long time, before they were given a boon. It is not that today I pray and tomorrow there will be a recovery in a large account. The recovery process is still slow and there is a little bit of disappointment there. Anyway, when it happens, it may be a jackpot in one quarter.

Are you optimistic or confident that by FY20 you will get resolution on one or two large accounts?
I am confident but the question is again it comes to the same thing. Every quarter, I have that confidence and in that quarter it does not happen but in FY20 for sure.

Is it realistic that in FY20 something will happen?
That is a realistic assessment because the hearing in my largest account is expected to start from 14th of October. One account alone is a very large chunk for me as well as for the banking industry in this country.

Markets also got worried when the repo loan pricing got changed. You think that fear is misplaced because your home loan rates are pretty competitive, though not very aggressive. Does that mean that the pressure on NIMs will not be there?
I have time and again stated that our domestic NIM is around 3.02-3.05%. So for us there is no scope of reducing the NIM because the credit cost still is fairly high in our country. If the credit costs are high, how can we compress the NIM below 3%? It has to be better than what we are currently.

So that fear is misplaced?
That fear is very misplaced because we may not be knowing our job as the analysts do, but when we are doing anything, we are consciously deciding there is a bank ALCO Committee. We know how we to manage our liability and how to manage our floating rate book. We are not people who do not know asset-liability management or will do something where our asset-liability management does not permit. If it is something floating on the balance sheet side floating rate, then on the liability side, we are in a position to take care that whether the interest rate moves up or goes down. Our margin remains protected. Otherwise, we do not have a good asset-liability management.

Right now, interest rates are going down. They may go down further this week but when repo rates start increasing, will you be expanding your NIMs?
We will not be expanding the NIMs because if the repo rate goes up and the interest rate goes up, then the transmission again will happen on both sides. Depositors also will pay more.

Deposit growth will come with the lag.
Whatever, but that we take care as I said, but the interest rate on deposits will be higher and in the whole process, if the cycle reverses then this is a risk which we are exposing our home loan borrowers to, but that is the regulatory guideline and we will abide by that.

If I say that this misnomer which lot of people have that government banks are losing market share it may be true for others but that is not true for you.
Yes that is a fact.

How come markets do not talk about it, how come nobody recognises it?
I do not think they have ever said that SBI is losing market share. When you are like incumbent bank, when you have the highest market share, you are the most vulnerable. that is also a fact and if in deposit I lose market share, it will be by choice because if my loan book does not grow, then why do I need the deposit at a high cost. Our rates are in fact very competitive on the deposit side also and loans and advances. We need to do a lot of efforts to maintain the market share. That is happening and the corporate side currently is weak but we are entering into a busy season and it should also pick up.

One very less appreciated fact is SBI’s cost to income ratio is constantly declining. That is because new labour workforces kicking in, pension and other liabilities are changing. What is your guidance there? I am surprised why nobody asked you this question?
Like our cost to income ratio, the reality is higher than the competition. There are many reasons for that but because of various reasons the provisions for terminal benefits have increased quite substantially year on year due to mainly wage revision; plus longevity and other factors like actuarial valuations. If we keep aside the provisions being made for terminal benefits, than our cost to income ratio is constantly declining and we have managed them very well.

Our increase in costs other than the provisions for the terminal benefits, may be 3% on an average but there is a lot of reversal of interest income when an account gets classified as NPA from a back date particularly in the agriculture sector. We need to keep the expenses where they are, grow our income and on the provision for the terminal benefits because it depends upon the actuarial valuations. Banks in fact do not have much control about that. So that is the cost structure but considering that we are such a large bank and spread across the country, the CASA is an advantage, but managing that in a bank this size and with the distribution network we have, the cost structure tends to be higher.

But will it settle down?
It is just tapering off as I said.

Where will it settle?
Our aim is 40%, but when we achieve it, depends upon business growth and the income. On the cost side or the overhead side, the employee profile is changing. We are having more and more new people and that is an advantage in terms of the cost. But as more people retire, the pension liability gets impacted.

The Morgan Stanley report explicitly talks about the credit cost and they are of the view that the credit cost will firmly settle between 1.50% and 1.80%.
That is high. In my view it should settle anywhere between 1.2% and 1.5%.

So that could take two years?
That depends upon of course on the macroeconomic and how we grow our book.

But the aim is to bring it down there?
Definitely. Ideally it should be below 1. But in the market segments that we operate in, we have a lot of social banking obligations. Considering that, it cannot be as low as I would like it to be but it would not be as high as what Morgan Stanley report is saying. I would be more than happy if it is around 1% but if because of macroeconomic reasons, there is a pressure on asset quality or the credit cost, then the aim is not to go beyond 1.5%.

Also Read

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SBI not open to takeovers, says Rajnish Kumar

There is no recession in the country, just decline in demand in certain sectors: Rajnish Kumar

Credit demand subdued, economy needs stimulus: SBI Chairman Rajnish Kumar

Govt spending will revive private sector investment: Rajnish Kumar, SBI chairman

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