Though changes cannot be expected in the economy in a month, May 16 has ushered in new hope for the people, the markets and the international investors. SBI chairman Arundhati Bhattacharya, who is in charge of the largest bank in India, says the government needs to control its deficits and subsidise only those who need it the most.
Here are excerpts from the interview:
Do you think from this budget dreams will come true?
It is impossible to solve every issue within one year. It is evident from the government’s intentions that they will take correct measures. It is not necessary that the entire roadmap will be announced in the budget itself. From the budget, we will know which direction the government is heading. The government will have to keep fiscal deficit in control. Currently, revenue deficit is equal to 70% of fiscal deficit. Revenue deficit should be in the range of 4.1-4.5% and revenue deficit should also come down. We are expecting capital for banks, insurance, measure for foreign direct investment (FDI) and the Goods and Services Tax (GST) to be announced in the budget. We are also expecting a clarification on backdated tax law implementation norms. Foreign Institutional Investors (FIIs) want consistency in government policies. Investor confidence will be regained if policies are clear and consistent.
How has the perception of investors changed towards India post May 16?
There has been a great change in the perception of investors after May 16. Foreign investors have always found potential in India. India desperately needs sustainable long-term growth.
What can be the bitter pills that the government has been talking about?
The government has already given bitter pills before the budget. The railways have signalled a hike in passenger fares. Among others, LPG subsidy should be reduced. The needy should get the LPG subsidy. Illicit usage of diesel subsidy must be stopped. SUV owners are taking more diesel subsidy than farmers. People should know why there is a need for bitter pills. If they get to know the advantages of bitter pills they will co-operate.
By when and in which sectors can we see improvement in the real economy?
It will take two to three quarters for improvement in the real economy. It is a positive signal that companies are coming in the market to raise money. It will take some time for the demand cycle to start completely. When companies expand, there will be demand and then you will be able to see the impact. The growth in the real economy will be seen only after six to nine months.
Are you seeing improvement in the infra, power, SME and aviation sectors?
Initially, the problems were witnessed in the telecom sector, now there is recovery in the sector. Operating profits (EBITDA) of telecom companies is in the positive zone. We are also seeing recovery in textile, power, iron and steel. Depreciation in the rupee and improvement in the global markets have helped the textile sector. In the last quarter, we will be able to see improvement in the iron and steel sector. The steel sector will benefit from a recovery in the construction sector.
Industrial production (IIP) figures have starting showing increase in power output. The number of deals in the power sectors shows growing interest in the sector. All ministries are working towards reviving the power sector. If electricity is provided 24x7 then there would be increase in productivity. The health of electricity distribution companies has improved due to restructuring. Everyone should not get subsidised electricity.
How will recovery in different sectors help SBI?
Recovery in different sectors will help reduce Non-performing assets (NPAs: bad debts). Sectors like infra, iron and steel and textile were under pressure. NPAs should be further reduced in infra, iron and steel and textile sectors.
What will be SBI’s credit growth in the current financial year?
Our target in the beginning of the financial year was 15-16%. In the first quarter it was merely 13%. It looks like credit growth will start showing increase from April next year. There is still time for real economy to start showing growth, but signals are positive. Initially, big customers were only talking about non-performing assets (NPAs), now they are talking about expanding and loans for new plant.
Do you think the weak monsoon is a concern?
Indeed, weak monsoon will have a negative impact. The government needs to reduce dependence on monsoon. There should be long-term policy to reduce dependence. We need large investments for irrigation schemes. We need to have drip irrigation to save water. We need to practice More Crop Per Drop policy. If we get proper monsoon in July, then we might not have too many problems.
When will customers get cheap loans?
At the moment, rates are showing no signs of coming down. Deposit rates are dependent on interest rates than the repo rate. Deposit rates will not be reduced till inflation does not come down. Deposit rates cannot be lower than inflation. Until deposit rates don’t come down, it will be difficult to offer cheaper loans.
Are you seeing any signs of decline in inflation?
Inflation rate may not rise, but it will take time to come down. Immediately, inflation will not come down, it will come down gradually. It is possible to bring inflation at 8% as timelined by the Reserve Bank of India (RBI).
After digital banking, what new products are you planning in the future?
There will be changes in the product with the help of new technology. SBI plans to bring premium KCC in rural areas. Credit for farmers to run the cost even for non-harvest season. We will use technology to reduce the burden on bank’s branches.