They Refer To Us As The Turnaround Bank

What, in your opinion, are the main reasons foreign investors are so interested in buying the SBI GDR?

I think they refer to us as the turnaround bank. They like the focus of the bank, based on the Mckinsey report, whereby there is a concentration on corporate accounts and a separate focus on our resources through our retail network, which is dedicated to personal banking and smaller areas like priority sector and agricultural banking.

But our most important segment is our personal banking segment where 52 per cent of all deposits come from individuals. If you add farmers to this, then the proportion becomes as much as 60 per cent; all of which is very stable. Last year our deposits were Rs 90,000 crore. By March next year, we are likely to cross one lakh crore in deposits. Another selling point is our low cost deposits: 20 per cent is in form of current accounts and another 24 per cent in savings bank where we pay only 4.5 per cent. So compared to foreign banks and the private banks our average cost of deposits is very low, at around eight percent only. All this gives us a good margin of about four per cent.

 

Do you think SBI will be able to keep its market share or will just come down as competition increases?

It will be a struggle. Earlier, the SBI group used to have a 30 per cent market share in banking business but it has come down to 24 per cent in deposit and 27 per cent in advances. The only share we have been able to maintain is in export and import transactions. Everybody is nibbling at us. For instance, In the metros and urban areas, it is the private banks that are our competitors. Of the Rs 5,000 crore they have raised I definitely think I have lost 1,000 crore.

What are your plans for the retail banking?

We are going a little slow on the retail front. As far as deposits are concerned our main aim is to woo back the urban and metro depositors we have lost to the foreign and private banks. To achieve this we have started a huge computerisation programme of our branches in these areas. Already 275 branches have been computerised. By March-end we expect to have computerised another 735 branches. Our strategy is to compete effectively with modern automated branches and good service. Then we will bring in networking and ATMs etc. We know our main competition is in these markets for deposits, not in the semi-urban and rural areas.

Consumer banking will be the next step. We are doing this gradually because we realise that we cannot offer good consumer banking products without having our branches and retail operations computerised. In the mean time we are planning to launch a credit card subsidiary for which we are talking to some foreign partners. I don't want to do it without the correct systems and technology in place. In my mind, Citibank is the only one which has been successful in doing consumer business here, other Indian banks have not really done well as they have lacked adequate systems. I don't want to get into a new area like consumer banking without the proper systems in place.

What will your USP in the credit card, considering you are such a late entrant?

Somehow out bank has been very conservative in this area. Instead of a credit card, we had started a cheque card which is clumsy to use as you need to carry you cheque book along. Besides, we can really leverage 13,000-strong group branch network. Which other bank can boast of a network like that?

You have plans to enter insurance as well?

Whenever the government permits, we are ready to enter insurance. In the good old days before nationalisation, the State Bank of India used to be the agents for a lot of the private companies. In fact we used to even offer the temporary cover notes for policies. Only when they got nationalised, this relationship was terminated.

Now if you can imagine that with our total loans portfolio of Rs 53,000 crore, what sort of clout we have with our customers to get those goods insured by SBI Insurance. All we need is a development officer with a separate table and chair in every one of our branches. It will be all captive business initially. Every branch also has 5,000 depositors on whom we have data and profiles we can tap to sell policies.

What prompted the one percentage point cut in PLR ?

A. Our advances have fallen Rs 2,600 crore in the first four months of the year, so this is an attempt to boost credit off-take. Earlier we cut the rate by half a percentage point and removed QIS requirements. We have not simultaneously cut our deposit rates as our deposit growth has been there but it is not as strong as the banking industry's; Rs 1,800 crore for us compared to Rs 16,000 for the entire banking industry. So it is much lower than our normal market share which was 20.5 last year.

What difference does it make to spreads?

Not much. The PLR is only for the top 50-60 clients. As our average lending rate is much higher around 17-18, there will not be much impact on spreads. As deposit growth is not very strong, we have not cut the rate as we might be the sufferers. As most of SBI long-term deposits come from individuals, we did not want to reduce the rate of 13 per cent for three years or above. We have decreased our NRNR rate to 17 per cent as it was too high earlier, an absurd rate almost. We will undertake a further review of the situation in two months.

Your costs have increased steadily over the past few years. Why?

This year, these expenses are much down compared to last year. The last two years we have had to pay salary arrears, and wage increases which increased our expenses. Besides, the government coupons have come down to below 14 per cent. So there will not be any further provision for depreciation this year. I don't know if the coupon rates changed in the second half but atleast in the first half, we have to make no provision for depreciation, indeed, there may be some writing back of profits.

Why are over 35 per cent of your borrowings and deposits combined are in govt and approved securities?

Of course we are carrying Rs 11-12,000 crore excess in government securities. But we are trying to slowly bring this down, as much as possible. Certain coupon rates we have been selling in the secondary market as and when opportunities arise. Also as our deposits grow, some of the excess will get adjusted against that. Besides, there are redemptions every year.

Do you think your interest income will keep growing strongly like previous years?

Let us wait and see. In the first four months of this year, credit has fallen when compared to March last year, but if you examine the figures of the first four months of last year, there has been no significant change. So this year also, interest income is likely to be strong but we have to see how credit picks up in the busy season.

Last year SBI's income from exchange transactions grew by Rs 450 crore. So did the bank profit from the volatility last year?

We have always been a dominant player in the foreign exchange market. As most of the top corporates are our clients and we have 45 per cent of all the foreign exchange related business in India. So it only natural that we were able to profit form the volatility which forced many of our clients to actively mange their dollar exposures.

Do you think your fee-based income will increase this year as well?

Definitely. Last year itself it was 36 per cent of total income and I expect this proportion to get higher. What we have done now with our corporate accounts group is that we are able to give corporates a one-window service through our relationship managers. Earlier we never used to focus on fee-based business, so corporates used to quietly go to the other banks. Now we are targeting them. It is simple, if they want credit from us, they have to give a portion of their fee-based business. Of course we also have to price competitive, but there is a focused attention on this now, both at the corporate accounts group branches and also at local head office level where we have created a commercial network of 215 branches headed by a general manager in each of the 13 circles. Through this we are able to keep tabs on how much fee-based business is being generated from clients. Also the big corporates realise that only a bank like State Bank can come to their aid in times of tight liquidity. Once they have found that out, even companies that had left us have now come back to us.

One proposal which has reared its head again is the merger of the associate banks. What is the status on that?

All this came about because the Mckinsey report recommended a merger. They said that it didn't make sense to compete with banks, in three of which we have a 100 per cent stake and fours other where we have more than a 90 per cent stake. We help them, include them in our consortium, let them use our training facilities but we do compete on the field. So they (Mckinsey) felt that this was of no purpose.

But you have to consider the other arguments. These are regional banks with a strong regional character, so people don't want this converted into a big national bank. Ultimately this decision rest with Parliament as the banks were given to us in an Act of Parliament. So we are keeping an open mind and we will do whatever the government or the Parliament tells us. But nothing is likely to be decided in the near future.

Why has credit not picked up this year?

In my opinion, it may be because the budget was delayed and people have postponed their investment decisions. Then the budget itself contained surprises like the MAT proposals which made the corporates wait till the finance bill had been passed to make capital investments or build inventories. Though companies have been reporting good results, the customer feedback is that their receivables are increasing and leading indicators like sale of trucks etc. are slowing down. If it is temporary, then once the finance bills are passed and busy season begins, things should improve.

Do you think this current liquidity in the system is a short-term phenomenon?

It is a short term thing, I feel. There are no signals of demand for credit going down, There is lot of demand for consumer goods etc. Also, I personally believe that one of the main factors contributing to demand are the monsoons. There has been uniform rains this year. So once the agriculturists start selling their produce, we also see an increase in demand for goods from that segment.