State Bank of India (SBI) would rather be known for excellent customer service than for controversial products, says chairman Pratip Chaudhuri.
In an interview with Vishwanath Nair and
Neelasri Barman, he talks about his journey with the nation’s largest lender since he took over in April 2011.
It has been eight months since you took over as chairman. How has the journey been so far?
When I took over, SBI had current account-savings account (CASA) ratio of 47%. For a bank, there are two streams of income, net interest income (NII) and other income. Globally, both regulators and analysts believe that other income could be volatile, but NII will be there with the bank as a source of income, no matter what stage of evolution it is in.
So, we have tried to focus on NII, and we have been very successful in increasing it, both in absolute as well as in percentage terms. Also, the bank’s net interest margins (NIMs) were one of the lowest in the industry. So the journey in the last eight months as SBI chief has not been an easy one.
What do you perceive would be the key challenges going forward?
Key challenges will be to maintain these kinds of margins, keep the asset quality under check and to be a little more efficient, in terms of usage of capital. We have to ensure that capital is deployed carefully.
What are SBI’s plans when it comes to exposure to small and medium enterprises (SMEs)?
There is a stigma that SMEs lead to a lot of delinquencies. We need to correct that. Yes, they are a bit more vulnerable than others because of their positioning in the industry.
So we have arranged that all loans upto Rs1 crore to SMEs are eligible for the scheme of guarantee. This is beneficial for the company as it does not have to pay collateral.
Also, once it comes under the guarantee scheme, it becomes a relatively less risky asset for the bank. We will try to bear the guarantee commission. We are assigning dedicated relationship managers for larger accounts who will be looking after all the aspects of the assets.
It is said thatmacroeconomic situations are working against the banking system. Most bankers, in fact, expect a dim credit growth scenario in 2012. What is your view?
I think we should not make any predictions now. Credit growth is a function of the prevailing mood. What goes into shaping the mood is the announcement of the fiscal’s budget expected in March 2012. The analysts will look at deficit numbers and how they are projected.
The second influencing factor would be the monsoon. If it is good, (market) sentiment will be positive. The third factor would be, how the global scenario shapes up. If there is more capital floating globally, then India will benefit. The fourth factor would be that we should not have any major calamity, natural disasters or communal riots.
We are expecting 16-18% credit growth for FY12. If FY12 credit growth is low, it will have an advantage in terms of base effect. Similarly, if credit growth is on the higher side, the base effect advantage won’t be there.
What do you have to say about sectors like power and aviation where there are a lot of non-performing assets?
Aviation is different, but I think all the risks involved in the power sector are microeconomic. In power, we have companies like NTPC and Tata Power, which are not small players. NTPC has 25% of India’s generating capacity and 33% of production, and is a fine company.
We are going to provide a big loan to Power Grid Corporation too. Having said that, this does not apply to relatively new players who are dependent on imported coal, or who have tied up their sales at very low prices. They are going to face problems.
But more than power, the problem is the struggling cash position of electricity boards. They are delaying payments to cable, transformer, switch gear and other equipment suppliers. As a result, these companies are struggling for cash and hence becoming non-performing assets.
There are companies that have not been paid for over 15 months. It is not like orders have not been given, but possibly the electricity boards or transmission companies do not have cash.
Aviation is a big problem, because I think we have overcapacity and players are not well-capitalised. So they cannot keep pumping in money. There exists a demand, but at a price which is difficult to provide, so you make a loss.
We have an exposure of about Rs16,000 crore to aviation. Most of these loans are given as non-funds, where you give a guarantee to Indian Oil Corporation to fill up the planes or to airport authorities where you pay for landing charges.
Current rules do not allow foreign entities to invest in Indian airlines. If foreign entities are allowed to invest (in Indian airlines), then Indian operators will have more equity and their operations will stabilise.
Your predecessor (OP Bhatt) created waves by introducing innovative products and teaser loans. What sort of products would you want to immortalise in this bank?
We would like to be known for providing the best customer services. For one, we have done away with prepayment charges. We were the first bank to do away with car loan or home loan prepayment charges.
If the customer finds a better deal elsewhere, he is not a hostage that I will ask for a ransom before I let him go.
This will keep us on our toes as the customer could find a better deal elsewhere. So we should be giving him something more. We would like to emerge as a bank which provides value-added and quality advice.
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