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State Bank of Mysore, 100 years old and one of the big associates of the State Bank group, is spreading its wings slowly into neighbouring States after being a predominantly Karnataka-centric bank till now. The bank is proceeding with its growth plans without being hampered by talk of its eventual merger with the parent company.
The bank’s Managing Director, Sharad Sharma, is currently grappling with the challenges of delinquency on the corporate loan portfolio as well as agricultural business because of a rural economy hit by successive droughts. He expects it will take at least a year before there is some visible improvement. In the meantime, he hopes to shift the bank’s focus more to the retail side.
He also needs to raise about Rs 100 crore (capital) for the bank, as the board has mandated a capital-adequacy ratio of 12 per cent. Recently, the bank went for an institutional private placement to comply with the SEBI directive of achieving a minimum public shareholding of 10 per cent for government companies.
Like most State Bank officers, Sharad Sharma has had stints in various places — Chennai, Delhi, Mumbai, Kolkata, Toronto, and so on — and across different functions — corporate, retail, risk management, forex, etc.
Ask him about his management style, and he says there is need to lay down three or four clear goals and pass them on to the next tier. He says, “The challenge is to become a bit more strategic and not do the same thing you did in the past.”
Excerpts from the interview:
Why are you not cutting rates?
It is not fair really to say we aren’t cutting rates. Everybody looks at the base rate. What you should look at is the net interest margin we are getting.
Let me put it in context. My marginal rate for a one-year deposit is 9 per cent and a for a two/three-year deposit, 9-10 per cent. My base rate is 10.15 per cent and this is the lowest after SBI’s. We reduced it in March, from 10.25 per cent to 10.15 per cent.
Now, you also have to provide a positive incentive for depositors, else bank deposits will not grow.
Why not live with a lower net interest margin?
My NIM is already down from 3.5 per cent to about 2.8 per cent now. So, transmission has been done to some extent. How did we do that? We reduced the rates on home, car, SME loans by 1.5-2 percentage points in one year.
My marginal rate on educational loans is just 10.4 per cent. Also, 80 per cent of my branches are in Karnataka. For SME or agricultural lending, you need to have more branches here. But we have had three successive years of drought, so agricultural performance has been bad. We are looking at schematic lending. We will also increase focus on retail and hope to give it a boost.
Have you had to face the problem of bulk deposits being high?
Why do you call it a problem?
Your costs go up then. Many banks face this problem and are trying to bring it down…..
Yes. Some large public sector banks have bulk deposits that are at 40 per cent or more levels. We were not in that situation.
Our bulk deposits in March 2012 were at about 29 per cent. In March this year, we reduced them to about 25 per cent, and further to about 20 per cent currently.
So we have knocked off about 10 percentage points of bulk deposits. We are not participating in any tenders of public sector units now — although I keep getting requests from various institutions. It is also helped by the fact that, at present, the demand for credit is not there.
Which sectors are picking up credit, if at all?
Over the past six months we have financed about 10 infrastructure projects. Some capacity is coming up in cement, which will come into the market a few years later. Renewal energy (wind/ hydro) have not seen much action. We have taken some exposure in a steel plant and an oil pipeline project. But not very many large-size projects have come in.
How are you tackling the problem of rising non-performing assets?
Our NPAs were at 4.75 per cent in March last year. We want to bring them down, but the last few months have been difficult with the economic slowdown. If we can retain them at that level by September, we will then try and bring them down.
It is pretty difficult on the corporate side. We are the sole bankers in a few cases. Sometimes when the majority decides, we have to fall in line and go for CDR schemes with the rest. On the retail side, fortunately, NPAs are lesser and within control.
What are your recruitment plans?
We have 10,800 people now. This year we plan to recruit 500 officers and 800 clerical staff — so about 1,300 people will come in. We are also increasing the number of branches. We had opened about 45 branches last year, and this year we plan to open around 220. We propose to open 20-25 branches in Bangalore and a number of them in the neighbouring States. This will help us on the retail side.
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