For Rajnish Kumar, Chairman, State Bank of India , the two years heading the country’s largest lender has been “full of action”. While the banking and financial sector has faced volatile times, Kumar is cautiously optimistic about prospects. Terming the move to consolidate public sector banks positive, Kumar in an interview to BusinessLine said he is also happy about the Supreme Court judgement on Insolvency and Bankruptcy Code, which has left no “grey areas”. Edited Excerpts:

It’s been two years for you as Chairman SBI. What has been your experience as it has been one of the most volatile times?

It was a difficult time for the industry as a whole and SBI is no exception to it. But still in this time, the bank is much stronger today in terms of balance sheet, provision coverage, NPA percentage, improvement in operating profit, leadership in digital space and lot of improvements have been brought about under the guidance of our board in respect of risk management. It has been full of action and not a single day when one can relax.

The bank went into the red in between. Were you worried at any point that it is not the way you intended it to go?

No CEO would like the company he leads to be in a loss. But whatever was the accumulation has got cleared. So today when you look at our PCR, if that was not done, we would not have reached this position. Some of the losses were partly on account of mark to market; it was not just loan loss provisions. There was a huge movement of yields and we decided that despite forbearance available from RBI, we did not exercise it. So whatever was the loss, it was booked. March 2018, June and September quarters were bad.

Do you think the worst is behind?

It is very difficult to make that statement. But I think where we were in March 2018, the industry as well as SBI, definitely things are not as bad as in March 2018. There are a couple of reasons—AQR happened and a lot of assets were classified as NPA. In March 2018, SBI classified Rs 1,000 crore as NPA provision. After that at least there is no accumulation now. Whatever is there is for current year. We will never be facing a situation where such kind of NPA was required to be declared. Banks have adequate capital with government’s recapitalisation efforts. SBI’s capital position has improved. For SBI, the balance sheet and pre provision operating profit both are much stronger and there is a consistent effort in that direction.

Are you seeing any revival in credit demand?

We are lending. In retail, there is fairly good progress. Corporate, sanctions are there. We have a fairly good pipeline of sanctions and I am hoping disbursements will also take place but project loans; there is always a time lag in disbursements. So what we sanction today takes at least six months. So what we always want is a robust pipeline, I am not so worried about disbursements. Working capital limit, whatever we sanction is at the disposal of the corporate, they can draw whenever they want. There are no issues around liquidity.

Which sectors are you upbeat on for lending, apart from retail?

In retail, the advantage is in terms of diversification. In corporate, the problem is that, if one large account goes under, it impacts the bank very badly. In our project finance pipeline, there are only three sectors, solar, roads and oil and gas from where projects are coming. In terms of bullishness, we have concerns in power sector on the health of the discoms. It is case to case, state to state and discom to discom. If the health of discoms was good, then I would have been bullish on renewable. But till the time, their financial sector is poor; we will never be bullish on the power sector. More than the sector, our bullishness would depend on the quality of the corporate or people behind the project.

What do you make of the consolidation in the banking sector?

If executed well, then it is good for the industry and good for the banks. It was always felt that there is no need for so many public sector banks, so I think it is a step in the right direction. The execution part is for the individual banks on how well they execute it. We don’t see it as a worry or threat, it will be better. Maybe some burden will be taken off the shoulders of SBI.

How do you see the IBC playing out?

I am now very happy after the Supreme Court judgement. It has left no grey area according to me. Nobody was happy with timelines in IBC, there were issues. Now there is no reason why timelines can’t be adhered to. There were a lot of disputes; they were mostly arising out of distribution as there were various claims—operational creditors, unsecured financial creditors. So all that debate is now settled. So the scope for litigation will be reduced.

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What about the decision to bring NBFCs to IBC?

It is a very good move, we needed a framework otherwise there was an issue. In the absence of any proper legal framework, the resolution was impossible. ILFS is a different case under Section 242 and it is going on. DHFL we will see but it is after admission into NCLT; the process would be same as for any other NCLT account.

What is the recovery percentage for cases referred to NCLT?

In IBC, two things –if the case is referred at an early stage without delay, then recoveries can be better. It all depends under what stage of stress, it is referred. If the company has gone down, then recovery is very difficult. There are certain sectors like aviation where you go to NCLT at whatever stage; the recovery will be very poor. Even a telecom company goes into bankruptcy; the recovery will be very poor. NBFC is a different case, though it is classified under the services sector but when they lend, there are underlying assets. But for aviation and telecom, there is no fallback for lenders to recover from.

Are you worried about private sector banks as they are eating into the deposit share of PSBs?

Deposits are mostly a function of interest rates. Today at SBI, our rates are relatively low as we have enough liquidity. Second is the service quality, which is more around transaction accounts. In current account space, private sector banks have a better market share. They got the first mover advantage with state of the art cash management product. For savings bank accounts, I don’t think there is much of an issue. PSBs have a very good distribution reach so the impact there is not much. And fixed deposit is a function of interest. Our FDs are growing by 12 per cent year on year. If I increase the rate by 50 basis points, the growth may be 17 per cent to 18 per cent.

How has the experience been with the repo linked rates?

We have linked all our retail loans, housing loans with external benchmark. All new loans are on this. We have given option to existing housing loan customers to switch. It has its own risks as to what if the interest rate goes up. So far it has not impacted NIM; it is all about managing your liabilities.

We have reduced the savings bank rates and linked it to external benchmark. At some stage, we had to set the floor also; otherwise it will hurt our savings bank franchise. So 3 per cent is the floor and we have not gone below that. Savings bank is a utility or transaction account, I doubt customers see it as an account from which they have to earn. For that, there are fixed deposits and other avenues. Cost of operations for savings bank is very high; bank has to recover those costs also. My entire distribution and ATM network, internet and mobile banking are for transaction banking.

Have you stepped up provisions for sectors like power and telecom, which are still to come out of the woods?

No. The provision for NPAs is 100 per cent almost and after all these developments, we will take a review. In telecom, it seems that things are moving in the right direction. The decision to defer spectrum payments will provide some relief.

In the power sector some state governments are reviewing contracts. How do view these decisions?

The sanctity of contracts in the ease of doing business is turning into a big issue. When an investment is made, it is made on certain assumptions and then if mid way they are changed, then the investor’s capability to invest further gets impacted very adversely .

Has the NPA recognition cycle come to an end or are you expecting more surprises given the tumult in the NBFC sector?

One is normal and one is sometimes an exception happens. In my view DHFL was an exception because it was AAA account and suddenly it started deteriorating. That is not very usual. All your exposure or strategy depends on internal and external rating. One can always wish that there are no exceptions.

Do you see an increased role of ARCs?

For ARCs, it depends on the accounts. We don’t sell bigger accounts to ARC as their capability to buy those accounts is very limited. I think bigger accounts, the resolution will mostly be through IBC process and smaller accounts will be either one time settlement or ARC sale.

Would you like to see something more on telecom after spectrum deferment?

We have to see the outcome of the review petition on AGR. Deferment for two years was a good relief and telecom companies have revised the tariff.

Do you think issues in the NBFC sector are settled?

Liquidity in my view is not an issue. It is all around solvency. Things are much better now in the sector.

What can be done to prevent issues amongst banks that happened in Altico case?

It is the responsibility or borrower of the NBFC, they have to take care of the cash flow and meet their repayments on time. The blame cannot be shifted to banks. My earlier observation on the Altico issue was based on certain information.

What has been the biggest learning from cases like DHFL and PMC Bank?

One of the most difficult aspect whether it is for Dewan Housing Finance Corporation Ltd or any other corporate is that banks themselves have not been able to check the diversion of funds. It has emerged as a big problem. Banks can not keep policing every account. If that is what a bank has to do, then it will take years to lend to one account. The biggest problem in the clean up exercise is not using the fund for what it was meant to be...it has brought a lot of misery to corporates, promoters and banks. I hope that everybody has learnt their lessons and if the funds are used for the purpose meant to be. I think auditors are still the best people to detect because they do a very deep dive. Banks also ask for audited balancesheet, which is a true and fair statement of affairs.

What is next on your digital space?

The aim behind adopting any technology is either enhancing the customer experience, cost cutting, revenue enhancement or risk management. YONO is all about front end but a lot more is going on back end also. We draw a notional P&L and we are in profit. A lot more is coming. We are developing YONO business in a big way for SME to corporates. There will be a lot of convenience for opening of account, transactions, forex. It will be the same experience, which we have given for retail customers. The future is more about mobile banking that internet banking.

Are you seeing lesser number of people required with digital advancements?

That is not happening but re-deployment is happening. Front end employees are moving to different roles. We have done manpower planning and we are not very overstaffed as of now.

Is security a big worry due to digital transactions?

Cyber and data are burning issues so one has to be very careful. The bank has invested a lot of money in making the system secure but this is an ongoing process.

What are your views on data localisation?

We will wait to see what happens with the new Bill. Protecting the data is big issue globally. The way to view it is that SBI has a lot of overseas operations and lot of processing is done in India. If I have to keep data locally in every location in all 35 countries, it will become very difficult to manage our overseas operation.

SBI did some surveys with employees. What was the outcome of those?

We keep doing a lot of things on the HR front. One limited survey we did in Bangalore was on the culture and merger aspects. Then we had an employee engagement survey. We also had a programme called Nayi Disha (New Direction), which was implemented in two phases. Phase I was where we told our employees on aligning their personal value system with that of the bank. Phase II was on how to deal with customers, including the difficult ones. We keep doing these organizational interventions.

What are your big plans for the next one year?

It is the same steady plan. SBI is a big bank and it does not work on a three or six month or one year plan. Directionally, whatever is there, will continue---effort to improve the balance sheet, pre provision operating profit, bring down credit cost, improve credit risk management, continue to invest in digital capabilities and how do you manage your human resource.

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