No Compromise On Quick Credit Delivery Now

Updated: May 31 2004, 05:30am hrs
He has made the State Bank of India (SBI) Group, a member of the $1 billion club. Under his chairmanship, SBI has increased its net profit by 19 per cent to Rs 3,681 crore during 2003-04. But the chairman of SBI, AK Purwar is not complacent. He admits that quick credit delivery is still the greatest challenge for the bank. But he is ready to accept the challenges and convert SBI from the status of Indias biggest commercial bank to a global bank. Mr Purwar spoke at length to FEs Sumanta Ray Chaudhuri on the future plans of SBI as well as how he views the future of the Indian banking industry. Excerpts:

Despite having a 19 per cent growth in net profit during the fiscal gone by, there has been decline in the rate of growth, which was 20 per cent in 2002-03. Dont you think that this is a black mark
Not really. This 19 per cent growth in net profit was achieved despite a lot of challenges. Take for example, SBI Home Finance Ltd and the massive provisioning that SBI had to make for it during 2003-04. Again, the 90-day norm on non-performing assets (NPAs) has forced us to make a much higher provisioning on this account.

Our staff expenses has also increased by over 13 per cent following additional contribution to the pension fund and provision for leave-encashment liability for the current year. I admit that all these difficulties are parts of running a giant organisation called SBI. But facing all these challenges, achieving a 19 per cent growth is no joke.

But why did you then declare a higher dividend of 110 per cent against 85 per cent earlier One presumes that you had to take special permission from Reserve Bank of India to declare this dividend since still now your net NPA is above three per cent.
This was purely a goodwill gesture towards our shareholders. As I said, the SBI Groups net profit has crossed the $1 billion mark and the management decided to share the pie of success with the banks shareholders. So we declared a 100 per cent regular dividend and 10 per cent special dividend for our shareholders. I believe that in the long term, this decision will help the bank is retaining investors confidence. My vision is to convert SBI into truly a global institution in the near future in terms of customer service, investors confidence and profitability.

Credit delivery and credit quality are two foremost challenges, that we will need to address. I have no hesitation to admit that SBI needs to drastically increase the pace of credit sanction and credit disbursement. Of course, we have taken some steps in decentralising our operations, with greater functional autonomy to the circle credit committees
AK Purwar
Chairman, SBI
What do you think will be your greatest challenge in achieving that
Credit delivery and credit quality are two foremost challenges, that we will need to address. I have no hesitation to admit that SBI needs to drastically increase the pace of credit sanction and credit disbursement.

Of course, we have taken some steps in decentralising our operations, with greater functional autonomy to the circle credit committees.

We have also undertaken a business process-reengineering programme and engaged McKinsey & Co as advisor of the project. McKinsey has started giving its reports in parts and SBI has started implementing its advises in departments like national banking group, corporate banking, medium & small enterprises advance section and other mortgage loan sectors.

The aim is to minimise the time-gap between application, sanction and disbursement. Similarly, getting good quality loan proposals will be another challenge for us. And this is applicable not only for SBI, but also the seven associate banks.

How far is the NPA fear psychosis responsible in this unnecessary delay in credit sanction and credit disbursement
You are absolutely right. This fear psychosis has been a major reason for this delay. The Indian Banks Association (IBA) in its recent report, has said that banking services should be absolutely brought out of the ambit of Central Vigilance Commission. IBA is absolutely right in its demand that banks should have their own checks and balances.

Many a times, a sincere and honest officer has been hauled by CVC because a loan sanctioned by him has become a NPA. Now such instances often make others feel shaky and they become over-cautious while processing a loan application. Already, bank officers upto a certain scale, have been brought out of the CVC ambit. But that is not enough and the entire industry should be brought out of that.

Is there any possibility of merging the seven associates of SBI with the parent bank
Such a merger is not at all necessary and the seven associate banks will continue to operate as independent entities. But we have synergised much of their operations. First of all, both SBI and its seven associates are on the same technology platform. The business process reengineering programme is applicable for all of them. Both SBI and the associates are cross-selling products of SBI Life Insurance Company Ltd and SBI Funds Management Pvt Ltd. With so much of synergy, a merger of associates with SBI is not necessary.

What kind of credit offtake do you expect during 2004-05, especially in terms of industrial credit
Industrial credit, especially project financing is going through a very good phase these days. During 2003-04, the average growth in project financing has been to the tune of around 16 per cent and the growth is expected to be somewhat during 2004-05 during the current fiscal.

Sectors like infrastructure and steel industry are projected for going through a healthy growth track during the current fiscal and hence, lending to these sectors is expected to receive a major boost.

Infrastructure lending has grown at the rate of 53 per cent during 2003-04 and a similar healthy growth is expected during 2004-05 as well. The services and SSI sectors are also expected to make major contributions in improving the credit offtake.

How is SBI expected to gain out it
We have projected a 15 per cent growth in overall advances during 2004-05. With the growth in industrial credit, our bank is expected to be on par with the industry. Agricultural credit is expected to grow at the rate of seven per cent and retail credit, at the rate of 36 per cent. In retail credit, housing finance, automobile finance and mortgage loans will be the main contributors.

As of the investment part, SBI will continue with its focus on treasury operations, especially trading in Government of India securities. I also expect our foreign exchange operations to contribute substantially in achieving a healthy profitability figure by the end of the current fiscal.

What is your target for NPA for 2004-05
My target is to bring down the net-NPA figure, as percentage of total advances to below two per cent by the end of 2004-05. Similarly, we are inducting technology in a bigger way to bring down the transaction cost.

Currently, SBIs transaction cost is 1.8 per cent and my target is to bring it down to below one per cent within a couple of years.

What are your plans regarding SBI Mutual Fund It seems that you are not very aggressive with this subsidiary.
Look, SBI Mutual Fund in itself, is a strong mutual fund. But you are right that we are not very aggressive about it. In fact, we are scouting for partners to run SBI Mutual Fund as a joint venture entity. We are holding talks with a couple of parties and we expect to finalise with one of them very soon.

Do you feel that the falling interest rate regime is coming to an end and do you expect the rate to take an upward movement now
The overall economic situation projects that the interest rate will remain stable for the medium term. The inflation rate is also within the manageable limit and the overall situation does not justify further cut in the interest rate. As of whether there will be any rise in the interest rate or not, I personally feel that a rise cannot be ruled out, but it will not happen immediately.

Despite Prime Minister Dr Manmohan Singhs assurance that state-run banks can go ahead with public offering plans provided the government stake in these banks remain over 51 per cent, there is a constant pressure on banks and the government by the Unions and the Left Parties for halting further dilution of government stake. Do you feel that such kind of pressure will force many banks to shelve their fresh public offering plans
I really do not think so. Of course such pressures are not desirable but I feel that individual banks will continue with their fresh public offering plans, according to their own requirements and such pressures will not impact their decisions.

If the public sector nature of the banks remain intact, which will be if the government stake remains over 51 per cent, what is the problem in dilution within the permissible limit