The best is yet to come for Indian banking: Rajnish Kumar, Aditya Puri

We need both large banks and small niche players, so that all the needs of the economy can be served, says Rajnish Kumar, former SBI chairman

The just-retired chief executives of the country’s top two banks – Rajnish Kumar (State Bank of India) and Aditya Puri (HDFC Bank) — shared their thoughts on key issues plaguing the Indian banking industry. Edited excerpts from a fireside chat:

Moratorium’s impact on banks

Rajnish Kumar: State Bank of India decided in June to adopt a very clear definition — anyone who has not paid one instalment will be considered to be under moratorium, and we declared that number to be around 9.5 per cent. Then, regulatory dispensation was given for over-the-counter restructuring on a case-by-case basis. For corporates, a lot of the resolution and cleanup had already happened, but we expected requests from the personal loan segment.

Aditya Puri: When the moratorium was first announced, everybody said the Indian banking sector is going to face hell. They equated the moratorium at 70 per cent with NPAs at 70 per cent. I’m glad those dire predictions did not come through, and they are not likely to come through. Will there be some uptick in NPAs? I should think so. Will there be disastrous NPAs? I don’t think so. My legacy will be a Covid-free balance sheet for HDFC Bank.

On banks’ risk-aversion

Puri: I told the RBI there is no risk-aversion, just prudent banking. If we lend money, it has to be returned. People have been impacted by Covid, and we are asking for help so that together, the RBI, government and banks can take the country further. How can we be risk-averse? Look at our topline — 20 per cent growth in this environment.

Banks not lending to MSMEs despite government guarantee

Puri: We were one of the biggest supporters of the scheme and we are the most aggressive participants in it. You are getting guaranteed assets at 8 per cent. I ran and booked it like there’s no tomorrow.

Rajnish Kumar: MSMEs experienced a temporary disruption of cash flow and required liquidity support, and we took the lead in disbursing these loans. Maybe, the banking system is not lending as freely as it was prior to 2014. There is growth but in many areas demand for credit has not been high. At the same time, we have to look at investment demand in the economy. Credit growth has been hovering around 5-6 per cent, as against 15-16 per cent or even higher at one point, but that was also a function of demand.

Low interest rate hurting savers

Rajnish Kumar: You have to look at what we were offering on fixed deposits. To protect senior citizens from falling interest rates, we offered 50 basis points extra on fixed deposits. And now we are offering 30 basis points more. But a savings account is entirely a utility account. The cost of operations is huge. The entire branch network, ATMs, customer service points, and 90 per cent of the workforce is for serving SBI’s 44 crore savings bank customers.

Puri: I agree, except that I paid a little more than Rajnish. 

Consolidation in the banking industry

Puri: Consolidation for the sake of consolidation doesn’t help. Also, ownership is not necessarily directly correlated with efficiency. The demand for financial services in this country exceeds the supply, especially in semi-urban and rural India, where 50-60 per cent of the country lives. Either existing banks have to provide a lot more credit, or let a lot more people come in. 

Rajnish: It is not consolidation versus more banks. The question is whether you become clones of each other. If there is no differentiation, then the purpose is defeated. Consolidation can have one big advantage, though. Apart from State Bank of India, if we have six more large banks, it augments the capability of handling large-scale project finance. But, when it comes to financial inclusion, lending to people who are not so privileged — for that you need many years. We need both large banks and small niche players, so that all the needs of the economy can be served.

Banking in a post-pandemic world

Puri: There will be some changes in the size of branches, and in how our services are delivered. But ultimately, it will also depend upon the consumer. Indian consumers are very varied. Some of them use digital, some want to come only to a branch, especially in semi-urban and rural areas and senior citizens. There is a secular shift in telecommunication, computing, artificial intelligence, cloud technology, social mobility, and so you need a fundamental change in operating systems, software marketing, etc. But there will be coexistence, and costs will come down. Change doesn’t happen so rapidly.

Rajnish: It is going to be a digital world. And the YONO platform is omnichannel. The people who have a smartphone, conversant with the technology, they can do everything in self-service mode. Those who don’t have a smartphone can visit a branch which is a YONO branch portal for  staff, and is, therefore, assisted. That is what we need in India. Mobile banking transactions have overtaken net banking transactions.

Most challenging event in career

Puri: The challenge is basically when you have to go from a small bank to scale. If you don’t understand the changes required to get scale, then you’re going to falter. So, four-five years after we started the bank, we felt that we should be a very large bank. So, you need the technology, you need the people, you have to redefine your markets, redefine your geography, and then make a success of it. 

Rajnish: Probably no other SBI chairman had to face such a challenging time. I was the managing director during demonetisation, responsible for the branch network, which was the fulcrum of activity. Then we had the merger, the problem of asset quality (the banks’ balance sheet was weak), the Insolvency and Bankruptcy Code, and the pandemic, all during my time. These three years have been very challenging for the banking industry. 

Legacy

Puri: The legacy that I leave is, one, a brand that stands for trust, integrity, transparency. Second, relentless customer focus. Third, an excellent technology platform and, most importantly, one of the most dedicated and motivated staff forces. People are under estimating the power of the country’s digital transformation, the power of the middle-class, the power of semi-urban and rural India, and India as a major manufacturing hub. I think the best is yet to come. 

Rajnish Kumar: It’s like a garden. There are mature trees, you pick certain saplings that you nurture, and you plant saplings for your successor to nurture. Whatever saplings I got, I nurtured them, and I planted many new saplings. I’m sure my successor will nurture them.