Mumbai: O.P. Bhatt, chairman of State Bank of India (SBI), the nation’s largest lender, will hang up his boots on Thursday. In an interaction with the media on Wednesday, Bhatt defended his “special” home loan schemes that were criticized by the banking regulator.
The regulator has not understood the product, he said.
A relaxed Bhatt, who often replied to questions in his native Hindi in the bank’s auditorium in Mumbai, spoke on a range of issues—from savings rate deregulation to acquisitions. Edited excerpts:
Looking back, how do you assess your five-year tenure?
The bank has done a lot of things, not only in quantitative terms but also in qualitative terms. There is more confidence and a qualitative shift has taken place in the minds of people. We really want to do better for our customers by way of technology, products.
We think we are the best bank in India. We are not afraid of competition and new products. I would like these things to continue in the future.
Have you achieved the targets you set for yourself?
Things keep on changing. There is always an unfinished agenda... For example, I would have loved to have merged all associates and want to raise some more capital for the bank. That has not happened but this is not really a great disappointment because the process is on.
There has been a positive contagion from whatever progress happened in SBI to other public sector banks. They are all trying to understand and implement the kind of innovations SBI has done, be it ATMs, branches, marketing.
RBI (Reserve Bank of India) has been highly critical about your teaser home loans.
Our special home loan product is not at all similar to what is there in global market or in (the) US. Home loans that caused the subprime crisis was given to people who had no jobs, no income and no assets. The assumption was real estate sector in America was appreciating 5-10% for many years and this will continue in the future also. They thought that if the borrower lost his job in two-three years, the bank can sell the appreciated property and get the money back. These loans were subprime, to begin with. (On the contrary,) SBI’s loans were given only after assessing the income, assets and repayment ability of people. These are all taxpaying Indian citizens. How these can be subprime?
Taking stock: State Bank of India’s outgoing chairman O.P. Bhatt. Abhijit Bhatlekar/Mint
So, RBI hasn’t understood the product?
Yes. Of course, they have not understood it. These loans are, in fact, less riskier. If you talk about transparency, we are explaining it to the customer about the EMI (equated monthly instalment) burden of the borrower. RBI is saying there is no transparency. But we are doing it in a total transparent way. The selection of (the) borrower is done in such a way that they are creditworthy individuals.
Has RBI been unfair to you?
You can draw your own conclusion but obviously they have not understood our product... Tell me, where is the characteristic of a teaser loan here?
But your existing customers are not getting any benefits.
That’s not correct. First, they don’t have any relation with this product. This is true for any new loan. Second, in banking, interest rate is based on prevailing market conditions. It depends on demand and supply.
Our loan portfolio is linked to a reference rate. If the cost of money is fluctuating and we feel in the next three-six months money is going to be expensive, we change our reference rate and with this, all loan rates change. Interest rates get revised like this for old customers and new customers get loans whose price is based on the prevailing market rates.
You have not done adequate provisions. Your successor will have a tough job as RBI does not seem to be happy with your bank.
I think it will be less tough than what I had. If you are a professional, it is not a question of likes or dislikes. It’s a question of whether it is right or not right... If RBI agrees with our argument (on special home loan schemes), then there is no issue. If they don’t agree, whatever they say we will follow. They are the regulator.
I would like to place it on record that SBI is 100% compliant with everything that RBI wants us to do. But wherever we have felt that the regulator could have or should have done differently, we have represented to them. After representations, we have done exactly what they have asked us to do.
We thought hiking the PCR (provision coverage ratio of non-performing assets) arbitrarily to 70% is not good and we made a representation (to RBI) and they didn’t agree. I want to make this very clear that being the largest bank, if at all we have a different point of view, we must articulate it in the interest of intellectual honesty and public policy. We are not picking up a fight. We have not been irresponsible.
You recently said that savings bank deregulation may not be good for the Indian banking system.
Our Casa (current and savings account) has improved and that has helped us reduce our cost of deposits. Once it gets deregulated, the customers will have difficulty. Public sector banks control 72% of the market and we do the most development activities. Deregulation will impair our ability. Does the country want it? I don’t think so.
Is there any major concern on the rise in NPAs in home loans?
There has not been any increase of NPAs in home loans. Not even in private sector banks. Our average outstanding in home loan is only Rs12 lakh. The customers are all middle-class family. They won’t default.
Most of the key posts in SBI are vacant.
The appointment of chairman and the managing directors is a matter of process. It takes time. There are layers through which the decision-making has to go through. Appointment of managing directors does not impact the working of the bank at all. SBI is a very complex organization. It is a bank-cum-holding company, the largest financial conglomerate in the country. Even (for) a person who has been appointed as a chairman from within the bank, it might take three-six months to know the nitty-gritty of the bank. For an outsider, it will be even more difficult.
Why didn’t SBI go for any acquisition though valuations were cheap during the financial crisis?
It is not that we did not look at any bank. We really didn’t find any good fit for SBI. I don’t want to buy a bank just for the sake of a large SBI. It wouldn’t have served the basic purpose for which the bank was created—“Banker to Every Indian”. If it doesn’t fit our philosophy, we will not buy a bank.
RBI has downgraded SBI’s rating.
I don’t know how you know about it. It is something confidential between RBI and SBI and I cannot talk about it.
You are setting up a leadership institute in Jaipur.
There is a proposal to set up a leadership institute for SBI. At SBI, we need leadership at all levels. We also want to distinguish leadership from executive education or management education. We are talking to a fair number of people. It is a question of methodology, content and process.
What will be your role in the organization?
If the bank chooses to engage me or take my services in some way, I would think about it. If I can, I would love to do that.
What is your post-retirement plan?
My post-retirement plans are still in (the) making, work is in progress. There are a few people or organizations who are trying to engage me but I felt it’s not proper to do it till I am in the bank. I want to do something where I am happy and also can spend time with my family. Wherever I work, I should be able to contribute in a manner that I am an asset and not a liability.