Worried at his bank’s continuous loss of market share in deposits and loans to nimbler but smaller private banks, Om Prakash Bhatt, State Bank of India chairman, has written to all employees at its 3,300 rural branches, imploring them to aggressively grow their business so that the bank’s rural network can become a competitive advantage.
Bhatt’s letter, provocatively titled “Do or Die,” directs all employees of the bank in rural and semi-urban areas to mobilize deposits. Their target: a 25% growth in deposits in four months through end-June.
SBI is India’s largest bank but its recent growth lags those of private banks, such as ICICI Bank Ltd, India’s largest bank by market value, and HDFC Bank. “The chairman is really pushing hard and the bank has realized that it is not easy to compete with private sector players,” said a senior SBI executive who didn’t want to be named.
The bank’s slow growth doesn’t just hurt its market share, but also its ability to compete in a market where there simply isn’t enough money to be had to fund the growing appetite of individuals and companies for credit. Most banks are scrambling for deposits to support their credit growth. As of mid-February, the banking industry’s credit growth over a 12-month period was 29%, and its deposit growth around16%.
“SBI cannot fight the private banks in urban India and the only way it can preserve its market share is by increasing business in rural India, where it has a very strong branch network. If it cannot take advantage of that, it will find it difficult to maintain its status,” said one international banking consultant who also did not wish to be identified.
It won’t be easy. ICICI, for example, is on an equally aggressive rural plan, with its chief executive, K.V. Kamath saying on Tuesday that his bank aims to increase the contribution of borrowers from the countryside to as much as 25% of total loans within two years.
In 2005-06, SBI’s deposits grew 3.5%, from Rs3,67,000 crore to Rs3,80,000 crore. The same year, ICICI Bank’s deposits grew by over 65% to Rs1,65,000 crore, and HDFC Bank’s deposits, by over 50% to Rs55,797 crore. Even among public sector banks, only Bank of Maharashtra, whose deposits declined by 6.72%, fared worse than SBI. And, in terms of growth in advances or loans, SBI’s 29.29% (to Rs202,000 crore) compares unfavourably with ICICI Bank’s 60% (Rs1,46,000 crore) and HDFC Bank’s 37% (Rs35,061crore).
According to two senior SBI executives who confirmed the contents of the letter, it offers various awards to employees who respond to the chairman’s call and mobilize deposits. “The letter mentions that new private banks have overtaken SBI in urban India (in terms of growth) and that even in rural India, SBI is slipping with a deposit growth of less than 1% last year,” said one bank executive who didn’t want to be named.
Bhatt was away in Washington and not available for comment. SBI’s deputy managing director in charge of rural banking Anup Banerjee was in Hyderabad, attending an internal meeting of senior executives, and could not be reached. Two managing directors of the bank, T.S. Bhattacharya and Yogesh Agarwal, when reached by telephone, declined to comment on the letter.
SBI has a network of 9,000 branches, out of which 6,600 are in rural and semi-urban areas. It also has 972 specialized branches in different parts of the country exclusively focused on the development of agriculture. The bank has recently created an agriculture business unit, carving it out from its national banking unit, to give special focus to its agriculture lending in keeping with the philosophy of the government, the majority shareholder in SBI.