Hyderabad: Neither the banking regulator nor the government, the majority owner of State Bank of India (SBI), the country’s largest bank by assets and market capitalization, has yet got back to the bank on its plan to merge its associate bank State Bank of Indore with itself.
The Reserve Bank of India (RBI) and the government’s decision on the proposed merger is critical as SBI plans to its volume by eventually merging all six associate banks with itself.
The boards of both SBI and State Bank of Indore cleared the merger proposal on 19 June.
SBI had earlier merged State Bank of Saurashtra with itself and its chairman O.P. Bhatt wants to make the bank bigger by merging all associate banks. A bigger balance sheet increases risk taking ability of a bank.
Showing results: O.P. Bhatt says his bank’s home loan growth in the April-July period over the corresponding months of last fiscal was 12%. Abhijit Bhatlekar / Mint
At a media interaction on the sidelines of a global summit on organizational development, Bhatt said he will decide whether he should go ahead with the original plan of merging all associate banks only after he hears from the government on the State Bank of Indore merger.
Bhatt also strongly defended his decision to offer home loans at 8% for first few years and said this is no gimmick. Edited excerpts:
The finance ministry doesn’t seem to be favouring the plan of merger of State Bank of Indore with SBI
Who says the ministry does not want me to do this? At least I am not aware of it.
It’s a process. A merger does not happen just like that. Some approvals are required from the regulator, and the owner.
We sent in (to RBI and the government) our board’s resolution and our intent that we have to merge State Bank of Indore with State Bank of India. Only after we hear from them on State Bank of Indore we will decide about other associate banks.
When do you expect to hear from the government?
I don’t know. Maybe soon. So far, they were busy with the Budget, which is an intensive and important exercise. It is not really fair to expect the bureaucrats of the ministry to apply themselves to some of these matters (of mergers) till the Budget is over. Now, I think, we should hear from them anytime.
SBI is offering cheap home loans for first few years and then the rates will go up. Is it a gimmick? Aren’t you misleading the consumers?
Tell me, where is the gimmick? Normally the rate of interest is 9.5% or 10%. I am saying I will give it to you for 8% for one year, two years or five years. Where is the gimmick here?
I am telling you orally, through advertisements, circulars, my bank mangers and through the documentation that you sign at the bank. Is it a gimmick to give loans at a cheaper rate? Is it misleading? Are we lying? Are we saying something wrong?
What kind of additional business could you generate from this?
Today, we have emerged as the largest home provider in the country. We have overtaken ICICI Bank Ltd and HDFC (Housing Development Finance Corp. Ltd). We are giving the cheapest home loans in the country now.
At a time when the economy is in so much of distress, the government has come out with more than on stimulus packages and RBI did its best to lower interest rates, as the largest financial player in the country we should also do something within our means, and within norms, laws and regulations.
The government had come out with two housing packages. One for up to Rs5 lakh and the other up to Rs20 lakh, with a concessional interest of 8.5% and 9.25%, respectively. These packages expired on 30 June.
What will happen to all those who did not so far make up their minds or get margin money? So we have introduced this package on our own. There is no gimmick in it. We are telling you what it is. If you don’t want, don’t take it.
How has the home loan growth been?
Our home loan growth in April-July over the corresponding period of last fiscal was 12%. Earlier, we used to clear home loans in six days flat and now it takes 10-15 days. There are some branches where 1,000-1,500 home loan applications are pending. The people are happy with the loans and there is no gimmick. Technology, product range, pricing, quality of service and response time are some of the key core strengths that are driving this growth.
Don’t you see a threat to the quality of mortgages?
We have only reduced our interest rate. We did not relax our due diligence norms, KYC (know your client) norms, eligibility criteria, appraisal systems, documentation (process), and collateral security.
Everybody wants the interest rates to go down—RBI, the government, industry associations and the consumers. When we bring down the interest rates, why should it be called a gimmick?
Since we cannot offer loans at 8% for 20-30 years, we first offered for one year and then two years and now five years for loans up to Rs5 lakh. We cannot offer it indefinitely. This offer will close on 31 October.
The bank’s loan assets are more than Rs5.5 lakh crore. Let us assume that we have some Rs5,500 crore of loans under this 8% interest category. It is less than 1% of my assets. What is the risk I am taking? Look at the benefit I am giving to people and look at the catalytic effect it will have on builders and individual consumers alike and the stimulus it gives to the economy.
We are not playing with the bank’s balance sheet. I want my bank to become stronger. Why would I do something reckless or gimmicky?
Do you have any targets for home loan growth?
There are no targets on market share but we would like to grow by at least 25% a year.
Given the kind of growth you are witnessing, what kind of capital would you require?
At the movement, we have enough capital. Our capital adequacy ratio is 14.25%. For asset growth, we have enough capital and we are fairly profitable and keep on getting our profits ploughed back.
If capital is required, it is because of the needs of other companies in the group or floating new companies or buying companies. Immediately there are no such plans. But we are open to opportunities. If we find something good available somewhere in the world and we want to buy it, we want to have capital ready to be able to buy that.
Your take on credit offtake?
Actually, the loan growth has picked up from the end of July. It’s too early to say on the impact of drought and insufficient monsoons.
The year-on-year credit growth for us is 23% and we hope to continue to grow even at a higher rate and our target is 25%.