SBI hints at fierce competition from new banking players

State Bank of India (SBI), the country's largest lender, is expecting competition in the banking space to hot up with the introduction of new entities.

The banking landscape is changing with a host of new players looking to start operations. Apart from two new universal banks, 11 payments banks will start operating in India over the next 18 months. In addition, the Reserve Bank of India (RBI) will announce licences to start small finance banks. Around 70 entities had applied for small finance bank licence.

"I'm really apprehensive about the new banks as they are an unknown entity. And unknown is always a reason to fear, especially if they are ready to burn capital, which most of the incumbent players can't do," said Arundhati Bhattacharya, chairman, SBI.

A host of corporate entities including Reliance Industries, Airtel, Aditya Birla have received RBI's approval to start payments banks. Interestingly, SBI has picked up 30 per cent stake in the RIL-promoted payments bank.

A payments bank will mainly facilitate remittance services apart from selling some simple financial products. They can accept deposit up to Rs 1 lakh from one customer, but are not allowed to lend.

According to Bhattacharya, public sector banks that are fighting rising bad loans could be at a disadvantage.

"Moreover, they will not have any legacy issues like the current players. Then they can move faster. It's going to be a dog-eat-dog's world," she said.

Bhattacharya is also apprehensive that new entities could come up with higher returns to lure customers.

"They can cannibalise our existing customer base, we really have a challenge before us, given the fact that these banks will be coming in without any risk, given the fact that they will be coming in with agile systems and delivery models, given the fact that they've not been held hostage by industry-level agreements and wage limits," Bhattacharya said during a seminar organised by FICCI and Indian Banks' Association (IBA) here on Monday.

While the central bank has de-regulated interest rates, most large banks offer four per cent. Some of the small and mid-sized private sector banks offer higher rate. Bandhan Bank, which RBI's approval to start a bank last year and started operations on Sunday, is also offering higher interest rate on savings deposits.

"If all of these come together, competition is going to be tougher. All of us incumbent players must look at it and decide what should be our response," she said.

The competition is not only from the new niche banking players but also from the existing private sector banks.

Considering that the private lenders are in a more stable pos ition thanks to bad loans under check and a better capital adequacy ratio than most public sector banks, they have managed to wrest more market share.

"Private banks are cannibalising the completed projects at low cost (because) risks have gone down. They may not be able to cannibalise me (SBI) because I am big but they are cannibalising the smaller banks," said Bhattacharya.

On the government's recent allocation of capital to the state-owned bank, Bhattacharya said: "I do not agree that the government has given us enough capital. They should look at the Chinese banks for the kind of capital they have got. I think we do a great job with the (capital) allocated."

Under re-capitalisation plans for public sector banks, 13 lenders have got Rs 20,058 crore this financial year. The remaining Rs 5,000 crore is going to be allocated based on efficiency criteria. Among the lenders, SBI has been allocated the highest amount of capital at Rs 5,511 crore, followed by Bank of India at Rs 2,455 crore, IDBI at Rs 2,229 crore, Punjab National Bank at Rs 1,732 crore and Indian Overseas Bank at Rs 2,009 crore.

The government has agreed to give a capital of Rs 70,000 crore over a period of four years to the state-owned banks. The total capital requirement of the banks, according to the government's estimate, is Rs 1.8 lakh crore in four years.