On 1 April, State Bank of India (SBI) merged its five associate banks and Bharatiya Mahila Bank with itself, a union which will catapult it to the ranks of the top 50 lenders in the world.
Following the merger, SBI’s growth will not necessarily be in the top line but in increased efficiency, productivity and better ratios, said its chairman, Arundhati Bhattacharya.
In an interview, she also talked about how credit growth is likely to rebound to 7-8% by the middle of the current fiscal, and called upon the government and the Reserve Bank of India (RBI) to participate more in stressed asset resolution. Edited excerpts:
Do you think your growth will slow post this consolidation with associate banks?
It depends on which areas we grow. While we may not be growing in certain areas, we may grow in areas where we are still small, like wealth management. It’s an area where I am small; so I am going to grow fast there. We don’t have any compulsion to simply increase the top line. The idea (behind the merger) is to increase efficiency, increase productivity, better the ratios that we have in various areas. Growth will come not necessarily in the top line.
What will be the integration cost for SBI due to the merger?
Integration cost is only in respect of VRS (voluntary retirement scheme) cost. We will know what the number is by 12th of the month. At that point of time, we can put down the cost. Most things are coming together. Other than that, there are some re-branding costs. The additional provident fund provision for employees of associate banks will not be more than Rs25 crore. There is nothing very substantial.
Do you expect to wrap up the merger by October, before you retire?
It should be wrapped up well before that. We are going to wait till the 22nd or 24th of April to finish the audit; and then, the data merger of banks will start taking place. That is expected to finish by end-May. Once the data merger is finished, thereafter, there is nothing which is left over. After that, there is only the question of doing rationalization, which will take place over a period of time. It will not happen very quickly. So, we should give 18 months’ time for all of that because there is the question of relocating branches. You have to locate to other places, move people and all of that takes a bit of time.
Credit growth has shrunk to 3.3% in February. Will credit growth be muted next year as well?
On growth, I don’t see things happening quickly. The first two quarters will go trying to resolve stressed assets. It is only from the next busy season that we can hope to see things growing well. We also have a caveat: the monsoon should be normal or near normal because the busy season growth is very much dependent on agriculture in our country. So, that is also very much there.
Overall, I think a lot of projects are beginning to take shape. Demand is growing no matter what we say. We had a little bit of blip in between. Most of the industry is back on track. Credit growth should be around 7-8%, driven by sectors such as roads, railways, transmission, fertilizers, renewable energy, affordable housing and some amount of work in smart city projects.
Are bankers taking any steps to resolve stressed assets, or are they waiting for regulatory or political support?
Some amount of support from government and regulator is required when you are looking at resolving systemic issues. This time, the NPA (non-performing assets) cycle has been systemic. It’s not a question of one or two or three corporates getting hit. It’s a question of a large number of corporates in a few identified sectors which have been hit. With that kind of a problem, it is important to have a systemic answer to these issues. A little more participation from the government and regulator is warranted and required.
Do you think the government is doing enough to protect bankers for their decisions?
We are looking to come up with valuations (for resolving NPAs) that will pass scrutiny. The difficulty even when you are putting up an asset for resolution is the variety of bids that come in: somebody says they want to buy it all out. Somebody says they want to come in as a strategic investor. Somebody says they want to come in as a financial investor. With the variety of bids that come in, it’s difficult to compare one with the other in order to determine which one is the best. That is where the controversy comes in.
What’s required is for somebody to say in the circumstances this is the best that could have been done. So, that is what bankers are looking for. Something that will give them the confidence to go ahead with the best of their abilities to ascertain what is good for this particular unit, without it being checked by hindsight to say “well, this could have been a better decision” or “that could have been a better decision”. So, I think, that’s what people are looking for. Private sector banks have that freedom. Their commercial decisions are not questioned. I think it’s important for all of us to be on the same playing field.
Is it the only reason stopping banks from going ahead with resolution of stressed assets?
There are other issues in respect of smaller banks. When you are looking at things like needing to meet large provisions, they will not have the wherewithal to do it at one time. That is another area that needs to be looked at. So, either they have to be given capital so that they can do it all at one time, or need to be given more time so that they can earn and pay.
While we are asking for this, it is apparent that these will be quite transparently disclosed. So there is nothing that the stakeholders will not be able to understand. What it will do is enable these banks to function while they assimilate the provisions that need to be taken. So some amount of flexibility is sought. What could be done is instead of making these provisions in one quarter, we can spread it out over a year, a year-and-a-half, so that provisions come at a later date. But my own feeling is that the quicker we get this behind us, the better it will be. The world is an evolving and challenging place today, whether it be (owing to) technology, competition or risk awareness. We need to have the bandwidth to address these issues instead of getting stuck with one issue.
What is the status of your tie-up with Brookfield Asset Management Inc. (over a stressed asset joint venture fund)?
There is nothing as of now. We don’t have a deal on the table.
Would you like to participate in a bad bank?
Frankly, I don’t know what the structure will look like.
Is the banking industry prepared to implement goods and services tax on 1 July?
There is a lot we have to do internally. We are already ready for people sending the money in through us (or paying tax). That will have to be tested with government servers. For our own internal purposes, there is a lot of work that needs to be done. The rules are not finalized. It’s going to be a humongous task. It is difficult to gauge at this time if we will meet the deadline of 1 July. We need more clarity on how things will happen.
Is SBI looking at giving variable pay to its employees?
We would like to do it. But the actual proposal is not yet on the table.