'Banking system has learnt lessons from 2008 crisis'

'They have since only tried to improve systems. Also, with regulatory guidance from time to time, we are in a position to assess a situation and react in time.'

Lenders are competing hard to feed a strong demand for loans as they keep costs and asset quality in check.

State Bank of India (SBI) Chairman Dinesh Khara spoke with Business Standard Consulting Editor Tamal Bandyopadhyay in a fireside chat at the BS BFSI Insight Summit 2023 about how the state-owned bank is carefully looking at interest-rate risk.

The biggest thing staring at the Indian banking industry is the deposit rate war. You have created a new position of assistant general manager (AGM) for every zone at SBI.
In your career, have you seen this kind of a war for deposits and what is your preparedness?

The philosophy behind creating AGM positions at zonal offices is that the Indian economy is evolving -- moving from developing to developed state.

Deposit is the raw material for any bank.

If they have to grow, they have to generate income. The interest income is an important component.

It is important that banks are able to mobilise deposits at the right price, as that also decides the lending trajectory.

In an economy we are today, there is competition on both sides -- not merely deposits but also picking up the right assets.

To ensure the right assets are picked up, one has to keep a tight control on the cost.

We have to be cognizant that the float left out in the economy, thanks to efficiency in the payment system, is hardly anything.

The government is focusing on in-time funding of accounts, and companies have got evolved treasuries.

They ensure they can optimise whatever surplus funds they have in terms of income they generate.

So, these are stark realities in which the banking system operates.

In that context, for a bank like SBI, with more than 22,500 branches and 500-plus regional offices, we serve a varied customer base. Their needs are different. As we are also known for trust, we have to showcase the right set of products.

That is one of the reasons why we felt a customer operating in Mumbai couldn't be compared with another in an upcountry location.

Their needs will differ, and they will have different asset class preferences.

This position (of AGM) was created to promote a customer's appreciation of an asset class and guide them appropriately.

We continue to have, perhaps, one of the highest Current Account & Saving Account (Casa) (deposits) even today.

As I say this, I am mindful that we have to fight to ensure our Casa market share is maintained, improved even.

Will we see SBI offering more than 4 per cent interest rate on savings?

We need to have a tight control on costs to underwrite the risks.

Naturally, we may not offer a high interest rate, but the add-on frills we give ensures we offer value to customers.

An advantage you have over others is your massive investment portfolio, which you can liquidate. What will be your credit-to-deposit ratio at this point?
What is your balance sheet size now?

If we look at our domestic book, it is 64-65 per cent. If we include overseas books, it is around 72 per cent.

But yes, of course, for all purposes, domestic book is about 85 per cent of our total balance sheet.

To that extent, we have sufficient elbow room to ensure we have sufficient liquidity to support our growth ambitions.

The balance sheet size is about Rs 60 trillion now; we represent one-fifth of the economy.

In the retail segment, bankers are saying in private that there are so-called issues with SMA1, SMA2 -- people are not able to pay within 30-60 days and it is a matter of time before we see some manageable rise in bad assets.
Is that true?

Much of it will depend on the quality of the book underwritten, and also the bank's past experience with customers.

These are some determinants that define stress in the retail book.

We have observed, it is very easy to underwrite in retail.

But one should have elaborate structures in place in terms of sourcing and underwriting, then control and follow-up, and an effective recovery mechanism.

These are the four pillars. Unless a bank invests in these, they might run the risk of delinquencies in the retail book.

One has to be very mindful of loan-to-value (LTV) and credit scores, and how the account is conducted.

This will ensure better quality in the retail book.

Your NPA was at a decadal low (net NPA less than one per cent) in the June quarter. Will this continue or will we see some slippages there?

NPAs are a function of two components. One is the real economy and second is the practices being adopted by the bank.

On this particular aspect, banks have significantly strengthened their underwriting practices.

When it comes to macro, it is doing well; there are hardly any challenges.

But, at the same time, I must also mention, as a bank practice we have been following for some time, we ensure our balance sheet is secured from any such asset-related stress.

We are much more pragmatic -- aggressive even -- in providing for any likely stress in the balance sheet.

So, as a bank I would not see any asset-quality concern in the foreseeable future.

Should banks become technology companies? SBI is owned by the government but is probably the first to adopt technology aggressively. Your predecessor spoke of actually hiving off YONO into a separate subsidiary.
Are you complete with technology or should something more be done?

It is a continuous effort to upgrade. For customer-centricity and meeting the expectations of customers -- they are always evolving -- we have to invest in technology.

When it comes to the customer base, we have the privilege of serving 480 million customers in the country.

As for our digital footprint, too, 84 per cent of our transactions are digital today and 97 per cent are happening outside of the branch.

And YONO (SBI's banking app), which was launched in 2017, already has 70 million registered users and 10 million customers logging in every day.

That is the kind of volume we handle.

Last year we underwrote Rs 1 trillion through YONO end-to-end digital, and we are expecting growth of 25-30 per cent this year.

This is the size we have created, but our ambition is clearly to create a digital bank within a bank.

With that in mind, we are embarking on a new journey -- YONO 2.0.

Attracting and retaining talent has become a challenge. Private-sector bankers say it has become a very difficult task to retain talent. Money will not keep them happy. Do you also think so?
Are you finding it difficult to attract and retain talent because you can't pay them as well as what the private sector?

I will just give you broad indicators. We advertised for 2,000 probationary officer positions and got 700,000 applications.

The SBI brand is well received when it comes to the younger generation.

We have got cadre in terms of people coming at an early stage as associate or probationer.

Otherwise, over a period time, we have identified the skill gaps and started hiring from the market at market-determined salaries.

We have seen we are in a position to attract the best talent.

It is not that they have a short-term horizon.

They come, stay with us and really enjoy working.

That is a clear reflection of the kind of scale we offer in terms of complexities and challenges.

I do not think many other institutions offer that kind of scale.

We offer good money as well as challenges. That is the reason SBI is able to attract the best in the industry even today.

Coming to customer service, typically in India, banks don't care much and customers are taken for granted.
I remember you trying an experiment called 'Ratri Shivir' where you were sending senior bank executives to spend time in the hinterland to get the feel of the ground.
Has it succeeded?

We started the Shivir in July 2022 because we had a challenge of Covid before that.

This was essentially to ensure connect in the hinterland. We have seen decent traction in terms of better customer behaviour -- like in repayments and customer selection of rural credit.

We started evaluating our branches on various parameters. And that has created huge competition in the minds of employers for improving their net promoter scores.

It is a multi-pronged effort covering aspects like improving digital offerings, customer convenience, and interaction on ground.

Customer complaints are addressed in a very systematic manner.

It is not only considered a transaction but we go into the root cause and try to fix what is contributing to the complaint.

The Reserve Bank of India (RBI) is beginning a new chapter from April 2024 for the investment segment.
You can buy corporate bonds and keep them in the held-to-maturity (HTM) category so that you can avoid interest rate risks.
Do we see banks, including SBI, subscribing to corporate debt instead of giving loans?
Or migrating certain loans within the existing portfolio into bond books?

This is one of the characteristics of the economy moving from developing to developed status.

Also, large lenders are expected to raise money from the debt capital market.

The new rules will open up opportunities for banks because they had a challenge of ceiling -- 23 per cent of their investment book could have been kept in HTM. Now that ceiling has been removed.

So, if corporate credit is not growing, companies are raising money from the debt capital market which allows banks to invest into such instruments.

The corporate bond market used to be Rs 12 trillion in 2013; today it is Rs 43-44 trillion -- about 17 per cent of our gross domestic product.

We have seen globally that the corporate bond market is 50-65 per cent.

So, I expect it to grow from current Rs 44 trillion to about Rs 200 trillion by 2027-28.

HDFC merged with HDFC Bank. Now that bank's chief executive has been talking about growing at a fast pace.
The gap between HDFC Bank and SBI has narrowed. Are you concerned?

When it comes to competition, we are a 217-year-young bank. I recall, the then chairman had spoken of competition in 1956 too.

We have lived all this in an evolving financial sector environment.

What matters most is that one should not lose sight of the growth levers required to be built in the organisation.

To prevent decay, we have to remain relevant for the customer.

That is part of the endeavour on the bank's part -- offering products, services and convenience.

With the base we have, and the reach we have created, the levers would continue to serve us even in the days to come and inshallah live up to the competition.

Everything looks good for the banking sector. Every quarter, we see banks getting better. We have never seen investors so excited about public-sector banks.
Is there anything that can go wrong?

As a banker, it is more like driving a car. You can't lose sight of what is ahead.

You should also ensure that the brakes are perfect and you are in a position to apply them at the right time.

So, judgement is important. That comes from experience.

I think the banking system has learnt its lessons from the 2008 accident (global financial crisis).

They have since only tried to improve systems. Also, with regulatory guidance from time to time, we are in a position to assess a situation and react in time. That is helping the system stay resilient.

During Covid, on day one, as bankers we were very worried how it might impact the balance sheet.

But we saw that banks provided for it adequately and that acted as a buffer.

That gives us the confidence that we should be able to visualise risks and strengthen the system.

The only risk is on the interest rate front, as it can convert into credit risk.

Since the system is already aware of this, I do not perceive any challenge in the near term.

Feature Presentation: Aslam Hunani/Rediff.com