GST rationalisation will support consumption growth in India this year, says SBI Chairman

Is last year’s rationalisation of the goods and services tax continuing to drive consumption demand?

We started FY27 very strongly, and not just SBI — other banks did as well. SBI recorded credit growth of almost 18% across sectors. I see consumption demand in the system sustaining. There is a flywheel effect from consumption. The retail segment is doing well. In fact, we have been something of an outlier in retail, performing better than other banks. I see that trend continuing through the year.

Banks cannot depend solely on public deposits to fund balance-sheet growth. How do you see this changing?

Over the next five to 10 years, there will be a significant shift in bank balance sheets. Credit growth will remain sustained. India is one of the world’s fastest-growing large economies, and GDP and credit growth are mutually reinforcing — they feed into each other.

Banks in India mobilise household and corporate savings through deposits and use them to fund their balance sheets. But a structural shift will take place, just as it has in the composition of household savings. We will have to find different ways of accessing these savings and managing the cost.

Even today, deposits are not necessarily cheap. Household savings are predominantly deployed in fixed deposits. In our book, too, 60% of deposits are fixed deposits. Of course, this provides considerable stability to our funding and helps avoid significant asset-liability mismatches.

What structures can be developed?

In most Western countries, bank funding is a judicious mix of market borrowings and deposits. We may not get into that situation immediately because we still have a long way to go in terms of moving towards market borrowings. But it is better that the banking system prepares for that.

Securitisation could be one of the ways. The question is how we bring liquidity to the illiquid asset pool on our balance sheets. If we develop good securitisation structures, there are pension funds and insurance companies that require long-term paper.

If you look at the market today, there is not much long-term paper available other than G-Secs. Corporate bonds are typically for five years. So, whether banks can provide longer-term paper is something we will have to seriously examine. Mortgages typically start with a tenure of 25 years, but their average life is 12-15 years. Banks can, therefore, issue 10-year term paper.

Credit demand suddenly seems to be powered by data centres, AI and certain new sectors. Estimates peg the funding requirement at around Rs 30 lakh crore. How is SBI gearing up to meet that challenge?

Historically, majority of such funding requirements in India have been met by banks as they are the primary mobilisers of household savings, and in my opinion, banks will continue to have a major presence in the funding landscape in the near future as well.

With its Centre of Excellence – CHAKRA, SBI is strengthening its institutional capability to understand these emerging sectors, design specialised financing solutions and partner with the ecosystem to enable projects that meaningfully contribute to the nation’s development journey.

However, I also believe that we may need more institutions like NaBFID and the NIIF (National Investment and Infrastructure Fund) for the specific purpose of addressing the long-term financing gaps in the infrastructure sector. The entire financial system has to contribute to the capital pool.

A growth lever that RBI has opened up for domestic banks is M&A financing. Has SBI made progress on this?

We have done four transactions worth around Rs 11,000 crore. We have a pipeline with visibility of another Rs 15,000 crore, comprising six to seven deals.

Besides manufacturing, we are seeing opportunities in non-conventional sectors such as software, which normally do not borrow from us. There could be consolidation in many of these sectors. We will evaluate those funding opportunities and build the book in a very calibrated manner.

This is not a scale-oriented business. But in many cases, both the acquirer and the target company are our customers. To that extent, it becomes easier for us to understand the transaction.

Will M&A financing be a collaborative exercise with other banks?

We would like to undertake this activity in collaboration with other banks. These could be multinational or domestic banks, and we would like transactions to be funded through consortium arrangements.

Interestingly, M&A financing also has a large bridge-financing component. A group of lenders will underwrite a transaction and then distribute the exposure to a wider lending community once the bridge loan moves to long term facility. That means the book will grow and then come down as the exposure is distributed.

You have guided for credit growth of 14-15% for FY27, while deposits are expected to grow at a slower 10-11%. Will this imbalance remain a concern?

We have a huge deposit base of Rs 60 lakh crore. Even if it grows at 10%, it generates very significant liquidity on our balance sheet.

Additionally, as we speak, we have more than Rs 4 lakh crore of excess SLR. That gives us the opportunity to maintain a balancing act, particularly on the bulk-deposit side. This has helped us manage our liabilities very efficiently.

The RBI has asked banks to disclose bulk deposit rates from October. Will this lead to a fall in rates?

It will definitely bring greater transparency to the pricing of bulk deposits.

But it is too early to say how the system will behave. Ultimately, rates — whether you display them on your website or not — will be determined by your requirement for funds.

How will the FCNR(B) deposit flows help banks?

It is definitely a good move by the RBI. Though there is a cost involved, there are larger objectives to be achieved, and for banks, FCNR(B) deposits will provide timely liquidity.

The supplementary deposit flows will also help soften interest rates in the system.

Is there a trend among banks towards increasing the share of RAM — retail, agriculture and MSME — in the total loan mix?

In 2015-16, the composition of our loan book was 40% corporate and 60% retail. Now that composition has changed, with retail accounting for 67% and corporate 33%.

We want to maintain this judicious mix. Within retail, retail personal, agriculture and MSME are growing meaningfully in our book. At the same time, we remain the largest corporate lender in the country.

The government seems to be giving the MSME segment a push. How do you see the opportunity?

Most mainstream banks have returned to MSME lending in a big way because there is greater visibility today in their operations, sales and revenue models.

Over the past five to six years, we have strengthened our relationship teams for MSME funding across the country. Today, SBI deploys more than 2,000 dedicated personnel for MSME lending. I do not think any bank has such a large number of relationship managers on the ground.

The most notable change we have made over the past two to three years is using the digital and data ecosystem to underwrite MSME loans. Credit growth in the MSME segment is now around 20%.

On expected credit loss, what is your preparation and how much provisioning will you have to make?

It will not have a significant capital impact for two reasons. First, there is a transition period of four to five years. Second, we have adequate capital flows coming in, either through our recently concluded AMC listing or proposed NSE divestment.

So, it will not affect our ability to fund credit growth in any manner.

Strengthening the bank’s capital position one of your key agendas when you took over at the helm in August 2024? How has it progressed?

When I took over, our CET1 and CRAR were 10.25% and 13.86%. We are looking to maintain CET1 capital of 12% and CRAR of 15% through the cycles.

With the capitalisation we have undertaken so far and the profit accretion that happens every year, I am confident that we will be able to maintain these ratios even if robust credit growth continues.

We raised one of the largest QIPs in the industry — Rs 25,000 crore last year. We also had a couple of monetisation on our radar. The recently concluded SBI Funds Management stake sale and the proposed NSE divestment will further augment our capital position.

You had said that around 70% of people with salary accounts at SBI had not been tapped for wealth management. How has that progressed over the past couple of years?

It is progressing well. Over the past two years, we have strengthened our integrated wealth-management platform and our relationship teams, largely by hiring from the market.

But we also realised that apart from wealth customers looking for investment products, there is a large number of high relationship-value customers who primarily want good-quality service. They also bring in more deposits. For them, we have created virtual relationship manager teams.

We are looking to have at least 2,000 virtual relationship managers, with each serving around 400-500 customers.

We are following a different model. It is not private banking, and it is not completely focused on investments. We want customers to be comfortable. Initially, they come to us with their savings. When they become comfortable moving into investments, we are ready to service them.

It is not about pushing them every day to buy something. That is the ecosystem we would like to create around wealth management.

Now that SBI is closing in on its peers in terms of market capitalisation, how does it feel, given that you have always said the bank deserves a better valuation?

I am glad that the good work being done by SBI as an institution is being recognised by all stakeholders, including investors. I believe that there is still much more room for improvement in valuation.

But if the bank is mobilising almost 20-23% of the nation’s savings, its responsibility is much wider than profitability and valuation. SBI has a greater role to play in the overall economy.

What is your take on interest rates in the system? Will it remain low for a prolonged period? What about deposit rates? As credit growth picks up steam and liquidity in the system flows out, will deposit rates go up across the system?

I feel RBI is in a reasonably comfortable position at the moment. It has remained in a pause mode over the last two MPC meetings, and the current inflation outlook gives it some room to continue supporting growth while keeping rates steady. At this stage, the impact of the West Asia conflict on domestic inflation does not appear significant enough to push CPI beyond the RBI’s tolerance band for a prolonged period.

Deposit rates will, of course, respond to the evolving demand-supply situation. But banks also have several levers to manage their liquidity, including better mobilisation of savings, asset monetisation and a calibrated approach to credit growth. So, I would not look at deposit rates in isolation.

The RBI has not raised the repo rate, and it does not look like they will raise it this calendar year. What is your call? Will the RBI hike rates this calendar year.

I would expect the RBI to remain watchful and continue with its wait-and-watch approach for now. The current inflation and growth dynamics do not suggest any immediate need for a rate increase, so my expectation would be that rates remain steady for the time being.

Is there a possibility that real interest rates would turn negative if repo rates remain unchanged

At present, the real repo rate is not negative. What is also encouraging is that deposit mobilisation has remained resilient. Even though real deposit rates moderated in the last six months, deposit growth has improved. So, I do not see a negative real-rate environment as an immediate concern.

The RBI has upped the growth rate and reduced the inflation rate? Are they feeling confident about investing? What are companies doing? Are there many greenfield projects coming up or is it brownfield expansions and working capital fueling the corporate credit growth?

The investment cycle is showing signs of improvement, although it is not concentrated in one particular segment. We are witnessing a broad-based recovery.

Interestingly, in the last couple of years, working-capital loans such as cash credit, overdrafts, demand loans and export credit have grown relatively faster than overall credit and term loans. This is visible across agriculture, industry and services.

Capex demand is also picking up, particularly in sunrise sectors. We are also seeing brownfield expansion in areas such as petroleum, coal and infrastructure. So, it is not an either-or situation. Working capital is supporting the current momentum, while the underlying capex cycle is also gradually gaining strength.

What do corporate balance sheets look like? There was a time when they were cash-surplus and did not need to borrow from banks. What is the situation like? 

The corporate sector is in a much stronger position than it was a few years ago. The results for Q1 FY27 seem positive.  They are also sitting on decent cash balances supported by significant deleveraging over the last few years.

Overall, the corporate balance-sheet position remains resilient.

Investment intentions are also encouraging. Manufacturing remains the largest destination, followed by information and communication services and electricity, gas and related sectors.