What is SBIs growth strategy given the tough environment and the competition
So far, we have been doing plain vanilla bankingbasically loans and depositsbut as the market matures you will find more complex products coming in. The market is interesting and energising because its one where the cake is growing; its not as though everyone is looking for a slice of the same pie. So, as it grows, we will see new products being rolled out.
SBI has been undercutting competitors in order to wean away large customers
There is enough liquidity in the market so everybodys undercutting each other, its not SBI alone. For instance, HDFC Banks home loan rate used to be above ours, now its the same as ours. In the case of double-A accounts, we find everybody is quoting base rates as there is a lot of liquidity and credit growth is slow. This is the traditional lean period; a transition period where its probably the end of one cycle and the beginning of another. For any cycle there has to be a pipeline but the pipeline right now is thin and needs to build up for good credit growth to happen. The deposit franchise continues to grow, which is why you are seeing the competition in asset pricing. We would like to compete not only on the pricing but also on delivery by making our products and processes better.
Did promoters get the better of banks in the last capex cycle Is there a need to review prudential lending norms
Whether promoters have got the better of banks is questionable because we havent seen the entire cycle, we have only seen the stress, which was caused not because the promoters did something wrongmaybe one or two of them didbut because the economic environment deteriorated. As the external sector weakened, many of our exporter clients lost out and internally, policy failures, shutdown in the mining sector, land acquisition issues and delayed environment clearances hurt. Also, we are a growing economy and I would call these growing pains. Many of the models we put in, we realised are not working. For instance, in the power sector, we had fixed costs, there was no pass-through for fuel and when the laws relating to coal imports in some countries changed, the plants became unviable. The models are new and need to be seasoned. On the question of whether the banks or the promoters suffered more, the banks suffering is out in the open so it is easy to see. There may be some promoters who are well off but there are a lot who have pledged everything to save their businesses. It cuts both ways and I wouldnt like to make a broad brush statement and say they got away with it. Much of the stress that we have seen could reverse, we have only seen CDR entries; maybe we will see exits too.
In the context of the models failing, given that on the ground nothing much is changing, would you lend to same kind of projects in the next capex cycle
The models are becoming better. First, I dont think there will be any mega power projects; the government seems to be clear on that. But if a power project came to us, we would look at it keeping in mind a different set of norms. We would not start anything unless we are sure all the clearances are in place. Second, regarding the equity, I would like to know the colour of the equity, where it is coming from and also have a plan B in place. The plan may be to raise money from the capital market, but the markets may not play ball. If the promoter says hes going to bring in equity from other group companies, we will do a check of the cash flows to see if he has that kind of money. We will also check with the lenders to those companies to see whether they are comfortable with the idea, so the due diligence will be greater. These are the lessons learnt from this cycle.
While you may believe that promoters havent got the better of banks, the fact is it is not easy for banks to ease out promoters and recover money. Sarfaesi and other such regulatory mechanisms havent really helped
Right now I dont see any material changes in this area. But we are asking the government for changes; we are asking for more teeth on the wilful defaulter status, we are asking that Sarfaesi be made to work in a shorter span of time. But these are quasi-judicial reforms and will take time. But now that we have been asked to report any kind of stress early on, it will help and we can take action. We had alerted the regulator on this and the overall discipline is improving. We have not tightened the prudential norms yet because we havent had to take much of a write-down for the bigger groups. They are not really a big problem, they have resources and their businesses are diversified so the stress will decrease as the economy revives. They have put up some very good assets; its a question of being able to monetise some of these and use the assets to full capacity.
Are you able to encourage corporates to sell assets
Yes, we do, but M&As take time. Nevertheless, we tell all large promoters to sell assets, if necessary. Actually, the stress has been more for the mid-corporates who have a single line of activity, which means the end of their livelihood.
Banks have suggested the setting up of an ARC to take over stressed assets
This was suggested at a meeting with the power minister because some PSU banks cannot take on additional exposure. I dont think there will be a major new exposure till the existing issues get resolved.
Is there seven-year money that could come into infra bonds
We are not looking at it because we dont need the money. I dont see retail investors buying these bonds immediately but, over a period of time, it could happen, and initially the subscribers will not be individuals. Depending on the rating, insurance players will buy bonds even if they are unsecured.
How soon does SBI require to raise capital
If we start growing at anything above 15%, we will need capital. But thats a little way off. I dont see more than 16% this year; it could happen next year. The last time we raised money, we were trying to avoid an event risk and I am happy to reward loyal investors, with an upside. It doesnt matter that we gave it at a little lower price, because there was an event risk. Going forward, we do have the option of timing the fund raising.
The PJ Nayak committee mentions a much larger requirement of capital for banks compared with government estimates
There are moving parts to this; at 14-15% growth of risk-weighted assets, the number will be different compared with a growth of 18%. Profitability will also make a difference. You could take a number anywhere between R2.5 lakh crore and R5.5 lakh crore and be right.
RBI makes the point that at 51% banks come under the purview of the CVC and CAG. If the government dilutes its stake below that, then banks and other PSUs are free from what you call instrumentality of state. Does that make life easier for you
Yes, from that perspective, it will make life easier, but there are other aspects to government ownership. People still believe they need a safe harbour; one reason why we were flooded with deposits in 2008 was because we are a government bank. In debt borrowing, overseas, being owned by the government is a plus; in equity borrowing, being owned by the government is a negative. This will get resolved over time; the government cant suddenly dilute its entire holding. They are now looking at the short time, but over time they do want a well-capitalised banking system and so they will do what is needed.
Does it make sense for SBI to set up a payments bank
We are assessing the payments bank; there could be some synergies, so we will look into it.
Is it costly for banks to implement the governments financial inclusion agenda
Our 38,000-strong business correspondent (BC) channel is profitable and runs on a stable IT system. The financial inclusion piece may be an investment initially but over time it is profitable. We need to give some subsidies directly to the customer through one account so that there is no misuse. Aadhaar enables that. The R5,000 overdraft per customer will be covered by a government guarantee, which is essentially a default guarantee, and we are also putting in other checks and balances. This will be done through the BC channel and so, to that extent, the customers will not be completely unknown. In fact, the money will be given to the lady of the house, so that is an additional plus since women tend to husband their resources better. We must remember that many of these accounts will have subsidies flowing through them, so its not dole.
Is an upgrade from Moodys on the cards
Moodys comes to us regularly; they saw us a month back and we have given them whatever information they sought. They look at the sovereign also and Im sure they will do something about it.