State Bank of India plans to go for loans with slightly higher risk only after it has exhausted all opportunities to lend to the best companies. This move comes at a time when the bank is saddled with bad loans aggregating about Rs 55,000 crore due to the economic slowdown.
Further, India’s largest bank wants to focus more on term loans as it is more paying. Besides, the working capital space is too crowded.
In an interview with
We can have very high growth in deposits if we take bulk deposits. But we have scrupulously stayed away from the bulk deposit market for almost a year now. Bulk deposits comprise just 1.1 per cent of our total deposits. Most of the public sector banks have 20-35 per cent of their total deposits in the form of bulk deposits.
This year so far, our deposits have grown by 14.5 per cent year-on-year, which is ahead of the banking system. We will end FY13 with deposit growth of about 15 per cent.
We have incentivised our staff to get more deposits. We have changed the work processes.
We have entrusted even our clerical staff with powers to pass cheques and facilitate transactions. So, the customer doesn’t have to wait for two or three people at the branch to complete a transaction. In the front office itself, there are people with (cheque) passing powers of up to Rs 4 lakh. Now, 95 per cent of the transactions are up to Rs 4 lakh. So, they get transacted at the front-office itself.
We had emasculated the branches — there was only one branch manager and under him there were very junior people. So if the branch manager has gone to meet a customer or he has been called to the regional office for a meeting, the branch was almost leaderless. Secondly, if any important customer visits the branch for some advice/information there is nobody senior enough to help. So, wherever we had deposits of more than Rs 100 crore, we have brought back a second level manager, called personal banking manager.
Now, every customer need not see the branch manager since there is a manager for personal banking. Any customer of sizeable importance can see him and get guidance.
Our deposits are entirely retail. This has come with a lot of careful planning, thought and lot of efforts. Today, each of our 14,500 branches is air-conditioned. Then in each branch we have put airport lounge chairs for customer comfort. We standardised the display and décor at the branches.
Then we came up with a ready reckoner. By referring to it a person saving, say, Rs 500 a month will know how much his money will grow to in 10 years; if a person puts his terminal retirement benefits of, say, Rs 4 lakhs in a fixed deposit, then he will know how much income he will get each month. This ready-reckoner is freely distributed.
Then we have brought out a very good scheme for our customers — for Rs 100 a year we are giving accident insurance of up to Rs 4 lakh. Then we have done away with the minimum balance charges in savings bank account.
Each SB account holder gets multi-city cheque book. So, the cheques don’t have to crisscross the country.
Loan growth
As the economy has been a little weak, loan demand has not been very robust. The bigger challenges are in the small and medium enterprises (SME) and mid-corporate segments. That is why our non-performing asset (NPA) numbers went up substantially. But we think we are over the hump.
Home and car loans have seen a good growth trajectory. We don’t do too much of personal unsecured loans. This business has been pushed off to SBI Cards. This year so far, our loan growth is about 19 per cent (y-o-y), which is ahead of the system. We expect to end the financial year with a loan growth of 21 per cent.
Loan pricing
I think we were very efficient in deposit gathering and now we have become more efficient. But we were not pricing our loans right. That is why whatever gains we were making in acquiring deposits, we were frittering away on the loans side. So, that (the loans side) we have streamlined, making it more risk-based by giving more importance to external rating.
Now there is a trade-off — you either chose poorer risk and higher price or you chose better risk and low price. So, we have shifted to better risk and low price. Only after we have exhausted our opportunities to lend to the best corporates will we go for higher risk.
Term loans
We are doing more of term loans. In India, if you are only in the retail loans space — home, agriculture, education, etc — then you can lend no more than 40-45 per cent of the total resources. So, banks have to lend to the corporate, business and manufacturing sectors otherwise the deposits that have come will not be profitably deployed.
The working capital space is too crowded. Any mutual fund, any insurance company can invest in a three or six-month Commercial Paper (CP) issued by corporates. For example, if Indian Oil needs short-term money for buying crude oil, they will issue a CP, which would be subscribed by banks and non-banks.
But when they set up a refinery at Paradeep and want a 10 or a 12 year loan, we give a certain amount of loan and other banks also pitch in. But a short-term player like a mutual fund cannot give long-term funds to corporates.
The long-term loan portfolio is more enduring and more paying. Indian Oil, if it borrows for short-term, in a given situation it will pay 8.75 per cent interest but in the same interest rate environment, if it goes for a long-term loan, it would be gladly paying 10.00-10.25 per cent. So, you get an additional premium with the same risk. Secondly, in India we have seen that the value of plant and machinery generally perseveres because today if it costs Rs 100 crore to set up a plant, tomorrow it will cost Rs 200 crore. So, even if you have a second-hand plant, people would buy it for Rs 120 or Rs 130 crore and the lender will not lose much.
Bad loans
Our gross NPAs are at Rs 55,000 crore. To tackle bad loans, one of our actions is to arrest accounts slipping into future NPAs.
We are careful about taking in new accounts. So, we have increased our minimum eligibility standards. Loan screening has become stringent. Secondly, we are becoming strict on guarantee facility.
We are selling bad loans partly, but largely we are working with companies, trying to give them longer repayment period, and doing some restructuring.
Most of the companies anticipated a higher flow of cash but that did not happen. Secondly, many of them went in for Foreign Currency Convertible Bonds (FCCBs).
They thought these bonds will be converted into equity and they don’t have to pay back. Now FCCB owners say that in order for them convert debt into equity, the company share price should have been higher. Since the share price is much lower, they are not interested in conversion. Hence, that is becoming a debt. So, we are trying to see whether a little more debt can be positioned and the repayment can be phased out.
We are lengthening the repayment period, trying to tell promoters to sell off their non-core assets/ businesses. If you want that business, you can ask somebody to run it and buy it back. So, all these recovery processes are in motion.