STATE BANK of India (SBI) chairman Rajnish Kumar has raised the red flag from a “systemic risk point of view” on further mergers by India’s largest bank, which already has “over 20 per cent market share”.
In interview to The Indian Express (page 19), Kumar said: “SBI has already become big. My view is that from a systemic risk point of view, it won’t be advisable that SBI grows through merger or acquisition. Our normal growth and maintaining of market share is a different matter. You can’t have a banking institution, which already has over 20 per cent market share (go for more mergers)… from the risk management perspective also, it’s not good.”
In April last year, the Bharatiya Mahila Bank was merged with SBI in line with the decision of the government, the dominant shareholder, to ensure greater banking services outreach to a larger number of women at a faster pace. Earlier, SBI’s associate banks had merged with the parent bank leading to the creation of a local banking behemoth with assets of over Rs 37 lakh crore and over 22,000 branches.
INTERVIEW | SBI chairman Rajnish Kumar
The SBI chief’s comments come against the backdrop of statements by senior government officials, regulators and others on the need for consolidation in India’s banking sector, especially with nearly a dozen state-owned banks placed under the Prompt Corrective Action framework with restrictions on lending, deposit mobilisation and borrowing.
In the past, too, many mergers in the banking sector have been forced ones. The SBI is seen as a candidate given its size and strength to take over any troubled banks if its principal shareholder does have its way down the line.
Kumar, who took over as SBI chairman last October, said what needs to be deliberated is whether the country needs 21 public sector banks.
According to Kumar, some of the banks under PCA that have submitted their revival plans to the government may be able to turn around quickly and others in two years. “They don’t have more time than that. Either you come out this year or next year. The NPA cycle has peaked,” he said.
Kumar believes that SBI’s bad loans will start coming down and loan slippages would not exceed two per cent unlike last year when it was high.
With the new insolvency and bankruptcy code in place, the days of overleveraging and thin equity are over, he said.
“Corporates are trying to adjust to the reality: Repay loans on time. With banks taking tough measures under the Insolvency and Bankruptcy Code (IBC), there’s consciousness about the need to pay on time, and days of overleveraging are over. Now there’s a discipline and threat. It’s a combination of IBC as well as the RBI framework for stressed assets. Everybody is adjusting to the new reality,” Kumar said.
Gross non-performing assets of banks have already topped the Rs 10,00,000-crore mark for the year to March 2018 with state-owned banks accounting for Rs 890,000 crore of bad loans and private banks the rest.
According to Kumar, the SBI has tightened the systems and processes involved in lending and recovery of bad loans. “We have done a lot of changes — at the policy and organisation levels. The structure, which handles our corporate banking, is undergoing a complete revamp. The process of sanction and the role of business vertical heads and the role of the risk department in sanctions have undergone a change,” he said.
On governance standards in private and public sector banks, Kumar said, “The law applies to all the banks equally. All are listed on the exchanges. If it is RBI regulations, it applies to all — private and public both. It is the organisation’s DNA and corporate governance structure where my view is that it should be ownership neutral.”
Kumar said ethics and integrity were critical to the banking sector. “Accountability has to be there. Also there should not be any witchhunt. However, if I do anything wrong and then expect that because I am from a bank and action should not be taken… that we can’t expect. At the same time, in commercial judgments which have been taken in good faith, people will have to be protected. People who are taking bona fide decisions should be protected,” he said.