When we look around the globe, the Indian economy is doing very best: SBI Chairman Dinesh Kumar Khara

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How is the banking sector performing?

The banking sector is doing pretty well. Last couple of years, the way the public sector banks have evolved, I think it is quite remarkable. All public sector banks have turned around. We have also done well. Last year, we recorded the highest-ever profit and crossed the milestone of Rs 50,000 crore. It gives a lot of satisfaction. Numbers are one part of the story, the other part of the story is building resilience, structures and systems, which eventually will go a long way.

Is the era of massive write-offs, which we saw in the past, over now?

I would say there were lessons that the banking system learned from past mistakes. Different banks, at different stages, strengthened their risk management and underwriting practices. There are also other contributors from the ecosystem, particularly there was never an insolvency law in the country in the past and later the law and structures around that came into existence. All these factors put together have created an environment which has helped the banking system to ensure that the lending becomes much better and much more informed.

So, I think these are the factors which have led to a situation where I feel that what you mentioned in terms of the era of write-offs, seems to be behind us. I would also like to mention that of late we have seen that it’s a responsible borrowing from the corporates. As far as the retail (loan) book is concerned, it is all linked to the (credit) bureau scores.

And also, the aspirational classes of the population are mindful of the fact that if at all their credit scores get spoiled, they will have challenges going forward. So, again there is responsible borrowing even on the retail side.

I would also like to mention that this is the normal trajectory when an economy moves from the developing to the developed stage; the ecosystem which is created gives enough insight into the customers’ behaviour. So, the same is the situation now for the Indian banking system too. There is enough structured and unstructured information available to the banks relating to the corporates and individuals. also. And all that is a very critical input value the banks are taking for deciding to lend or not to lend.

Asset quality review was seen as a bitter pill. Do you think it has kind of served the purpose, and we are reaping the benefits of that now?

It did a good job. It could help banks to ensure that whatever was required to be provided for, it should be provided for. I think soon thereafter Covid threat was there but fortunately Covid was behind us. The kind of provisioning which was done for all such loans which were given during Covid period under the ECLGS (Emergency Credit Line Guarantee Scheme)… they have performed better than what was expected. It (ECLGS) was a big comfort to lenders. RBI has prescribed different provisioning norms, but as we have moved beyond Covid, I would say that as far as SBI’s (ECLGS) book is concerned, I can say for sure that our book has behaved much better than what we had expected. We have actually provided for 30 per cent of that book, and the RBI had prescribed not more than 15 per cent. When we look at the book overall, it has performed much better.

What would have been your exposure to ECLGS loans?

Our ECLGS exposure is about Rs 20,000 crore. If I look at our total (loan) book, which is around Rs 35 lakh crore, Rs 20,000 crore is too small a number. Nevertheless, we had actually created about Rs 7,000 crore of provision in this particular book.

The recent GDP data showed that manufacturing was the driving force. When we see the credit growth numbers, the services sector is the highlight.

There are different stages in manufacturing. The first stage is the investment which has to happen in manufacturing capacity building. Once the capacity is created, then the actual manufacturing starts. So, the way I read the situation, particularly for us in the MSME segment, we have grown almost 23 per cent, which is higher than the rest of the segments. In the small or medium segment, we have seen even stronger activity. To answer your question, when we look at the GDP number, the growth number in GDP and the actual manufacturing, there is always a lag.

What does the SBI book look like?

Our total book size is Rs 35 lakh crore. The retail book is Rs 12 lakh crore, of which Rs 7 lakh crore is mortgage. MSME book would be about Rs 3.8 lakh crore and agriculture is around Rs 2.8 lakh. Mid corporate book is around Rs 5 lakh crore and large corporate is Rs 4.5 lakh crore. That’s how it is all stacked up. Our international book is Rs 5 lakh crore.

The economy seems to be doing well now. Do you see any concerns going forward?

I would say that perhaps it is a golden phase. In agriculture, where, in the first half, there were little concerns, but in the second half we have started seeing economic activity picking up even in the agricultural sector. When we look at FMCG data as well, the second-half very clearly is showing a positive trend. I think to that extent, practically all the sectors are firing, if I may say so. It’s a very positive sign. Also, when we look around the globe, the Indian economy is doing very best. But yes, of course, it is more because we are all internally focused. We are not as much an external economy. So, a significant portion of our GDP is our domestic economy. International markets have challenges and to that extent, that eventually show up in our international trade.

How are you seeing rural demand?

From the latter half of the second quarter, we have started seeing positive trends in rural demand. FMCG companies are the first ones who actually feel the nerve. The early indicators that we are getting from FMCG, there is a demand pick up in the rural economy.

There were some reports of distress in the rural economy.

When we talk about our rural book, we always had NPAs of more than 11 per cent. Now it has come down to less than 10 per cent. NPAs have come in the single digit. We have an internal target of bringing it below 8 per cent in this financial year, and we are moving in that direction. Our composition of the (rural) book has also changed. When we look at our SHG portfolio, it is doing exceedingly well. Our agri gold loan portfolio is also doing well. We have started looking at agriculture infrastructure fund related activities and we are supporting them. So, part of it is also attributed to the way we have started doing the customer selection, and also the kind of activities where we are getting in. We have taken up this task and we are moving in the right direction.

Do you expect a slowdown in retail loan growth following the RBI’s risk weight norms?

I don’t think so. I think there’s a lot of hype being created on the RBI’s measures, but the way I look at it is that this is a step which has been taken to ensure that the growth should be healthy. Some of the fintechs were offering low tickets, Rs 50,000 and less than Rs 50,000 kind of loans, without doing any appraisal and without having any collection machinery. I would say these were the loans given based on statistical analysis. That I think was not the right step. We had come across a situation when somebody was making a Rs 16,000 salary, and buying a Rs 12,000 phone because he knew that there was going to be an EMI for that Rs 12,000. I think that would not have been the right thing to happen in the economy, and that is why the RBI has come down on this kind of lending.

The other piece I would like to highlight is that this 125 per cent risk weight, which has been given to unsecured loans, was there before Covid also. During Covid only it was brought down to 100 per cent, and since Covid is behind us, it has been again brought back to 125 per cent.

The only thing is that the RWA which has been increased for NBFCs is an important factor. The intention there is to ensure that the risk inherent in these kinds of loans is carefully monitored. I don’t think it (the increase in risk-weighted assets) will have any major impact on the slowdown in terms of retail loans. This particular segment, for a system as a whole, was growing at about 30 per cent plus, which was probably overheating of the system. It will be (now) moderated, I would say that.

The US Fed recently indicated there can be cuts in interest rates. Do you expect the same thing to happen in India?

For the time being, we may not replicate what they (US Fed) have said because we are still more than 5 per cent inflation, and the RBI governor has repeatedly maintained that we would like to bring the inflation down to 4 per cent. So, I think till such time we are in the vicinity of 4 per cent, I don’t expect the rate cuts to happen. But at the same time, you should be mindful of the fact that the US Fed continued to increase the interest rates, but we never increased the interest rates.

Is liquidity a concern?

It (liquidity tightness) always happens around the time when the advance tax payment is there. So, these things keep on happening, but the RBI is very closely watching and ensuring that adequate liquidity should be there in the system.

A few years back you spoke about the mis-pricing of risks by banks. How is the scenario now?

I would say that still there is a mispricing of risks by some of the banks. There could be various other reasons also. Some banks have to ensure that they have to show growth in their loan book. Some banks have to ensure that their gross NPAs should not look awkward.

As a leading lender, region-wise, where do you see huge economic activity happening?

Practically, the whole country is sort of looking at the growth of ambition. Some states are aiming to become a $1 trillion economy by itself. So that is something remarkable. Some of the states which stand out would be – Gujarat, where there is a lot of activity; in Tamil Nadu, there’s a decent activity; Maharashtra; and even in Uttar Pradesh there is a lot of activity.

The banking system’s credit growth is mainly coming from the retail segment. How do you see growth in corporates?

As far as corporates are concerned, they have a lot of cash balances on their balance sheets. If you look at some of the corporates have got profit growth which was faster than that of the GDP growth. They have cash sitting on their balance sheets. First, they are consuming that cash. We have got about Rs 4.5 lakh crore worth of pipeline. We continue to get proposals. That is something I believe is an indication that now people have started looking at the investment opportunities very closely.

Last year, there was an investment commitment of Rs 35 lakh crore, and a year prior to that the investment commitment was about Rs 22 lakh crore. This year, in the first half, the investment commitment was Rs 20 lakh crore. So that is a very clear reflection that such investment decisions are on the drawing board. Now how are they going to fund it? Something would be through bank borrowing, as I mentioned our pipeline is Rs 4.5 lakh crore. Some part of it will be getting funded by equity, and some through NCDs (non-convertible debentures). They are all looking at multiple options for how to fund such an expansion. Invariably, there is always a lag in term loans. One is when we sanction and we start disbursing, there is always a lag. Second, it gets disbursed over a period of time. So, if I say that I have Rs 4.5 lakh crore (pipeline), it will not show up in my balance sheet right away, it will show up over a period of time.

Similarly, as I mentioned investment commitment of Rs 35 lakh crore (last year) or Rs 20 lakh crore (in H1 FY’24), even that will get reflected over a period of time. Will that get reflected in the bank borrowing? Perhaps, no. Only to the extent they will borrow from the banking system, will get reflected, and the remaining will either be funded from the market or funded from their own resources.

India’s aspirations is to grow at a much higher rate of 8-9 per cent. Can Indian banks meet the funding needs of a fast growing economy?

Even with the current capital which we have, we can support the asset growth of Rs 7 lakh crore plus. So, Rs 7 lakh crore kind of growth on a base of Rs 35 lakh crore is more than 20 per cent. So, that’s the kind of situation we are in. We are fully geared up. Last year, we earned Rs 50,000 crore in profit and we ploughed back Rs 40,000 crore out of that in the balance sheet. Prior to that, out of Rs 32,000 crore profit which we earned, Rs 25,000 crore was ploughed back. So, in the last two years itself, we have added about Rs 65,000 crore of capital. This year (FY’24) in the first half, we have already earned more than Rs 31,000 crore of profit. We would be ploughing back a significant portion of the year-end profit also. So actually, we are building the organic muscles within the bank. Every year, generate decent profit, plough it back and create the capability of increasing the balance sheet.

HR and technology are two critical aspects for public sector banks. For SBI, how do you tackle this?

When it comes to HR, we still continue to be an aspirational employer. Recently, we advertised the position of probationary officers, and more than 700,000 people have applied for that position. The total number of vacancies would be about 4,000. We had done some analysis at some point in time, which was done by an analyst, and he told us that the selection percentage in the probationary exam is even lower than that of the common admission test.

That is one part of the story. The second part of the story is that we have started recruiting even the circle-based officers, who have got limited ambition to grow. There we are ensuring that circle-based officers will come in, operate in that circle’s jurisdiction, and rise up to maybe an AGM (assistant general manager). In all, he will get 4-5 promotions. So there also we have received almost three times the number of positions that we advertised. This gives the impression that SBI still continues to be an aspirational job.

About 85 per cent of new hires, whether in the officers’ cadre or in the clerical cadre, are graduate engineers. So, the bank is increasingly consuming a lot of technology. This is the kind of talent pool which we get. We have created a stream where we expose them to the branch working and we have come out with a business solution department. We allow them to work for about 5-7 years in branches, complete their mandatory assignment, and then we draft them into a role which is a business solution, which is a bridge between business and technology. So, they are people who understand technology and businesses.

How do you match the salaries of talent acquired from outside?

There is no challenge. We can offer them market-related salaries. We have got companies such as SBI Capital Markets, SBI Life, SBI General, SBI Mutual Fund and SBI Card, where the top management goes from the bank and the rest of the people are market recruits. We are accustomed to living with the situation where our recruits will draw multiple times more. We understand the fact that if at all we have to nurture such entities, we cannot compromise. These companies are all run as any other professional corporate.

Are you closely watching any particular sector for high levels of slippages?

I would say that we watch very carefully the quality of assets, irrespective of the sector. We are ensuring that we should not lose sight of the quality at all, and for that whatever is required to be done, we have already put in place the structure.

Are you avoiding any particular sector?

The sector which we don’t understand, we don’t get into. We must understand the sector and that’s the fundamental principle.

Growth seen in small and medium industries is around 10 per cent. Do you see large corporates also looking to expand?

Yes. The Rs 4.5 lakh crore pipeline, which I mentioned, is actually medium to large corporates. Once it is sanctioned, availment will be sometime later. It will be availed in bits and pieces.

You are bullish on growth.

Yes, I am upbeat. If we look at the growth rate which is there in this (Indian) economy, and if we look around the globe, perhaps this (India) is one place where people would like to come in. Also, the uncertainty around political stability is not there. These are all positives.

What are the things that have changed over the last decade for SBI, as an institution, and percolated down internally?

A lot has been talked about the customer centricity in all our meetings. We have invested in technology and in a lot of processes. We are becoming so strong in retail. We have come out with a loan management system. Our retail book has got the gross NPA ratio which is 0.69 per cent. The (retail) book is almost Rs 13 lakh crore plus. Our credit cost for the entire bank is 0.26 per cent.

Public sector banks are by and large doing well but in terms of book value, private banks are far ahead.

There is a perception in the market of the ownership, but unfortunately, nobody has got to the fact that the accidents have happened in private sector banks, not in public sector banks. The labour or employee turnover ratio is 35 per cent in private sector banks. Nobody has talked about the efforts put in by the public sector banks in terms of capacity build. Unfortunately, those who decide the fate of the stock, wear glasses which are not favourable to such initiatives. It is for them, if at all they are not coming, they are missing the rally.

When I assumed office, my (SBI’s) stock was at Rs 117 apiece, and now it is near Rs 650 apiece. Various brokerage houses are reporting that it should be Rs 700 plus. Somebody said it should be Rs 800 apiece. I work for my stakeholders; I don’t look at this number. Yes, once in a while I must look at it. People have got apprehensions in their minds which are unfounded.