Arundhati Bhattacharya, chairperson of the country’s largest lender, State Bank of India, expects consumer and home loan rates to come down soon. She spoke to HT on a variety of issues. Excerpts:
When do see banks finally reducing lending rates for final consumers?
It will happen. The transmission takes some time to happen. It might take a little time. But it will happen. To tell you the exact time will be difficult for me. We are constantly monitoring situation. We will take a call, soon rather than later.
The RBI governor expects banks to start cutting rates within five weeks, which is April. Do you agree with this timeline? Possibly. But again, as I said these are calls that will have to be taken by the individual banks. So it is difficult to predict exactly when it will happen.
Can we expect home loan rates to fall below 10% for the first time since 2008?
It is difficult to say what we will do. Whether it will be a product wise rate cut or a base rate cut, will all depend on how the ALCO (Asset Liability Committee of the bank) perceives. I cannot really tell you know ahead of time as to what exactly is going to happen. It is an ALCO decision. Once the ALCO decision comes I will have to advise everybody. We have not taken any decision on this matter yet.
Prime Minister Narendra Modi in January had assured bankers of zero interference by the government in banks’ operations. How has things changed ever since?
To tell you the truth it was not as though we were getting calls from the PMO (Prime Minister’s Office) every day. Somehow there is a feeling that every single decision of public sector banks is prompted by the government. That is not the case. Even today it is not so. We are definitely are not getting any calls from the PMO or from anybody in the government. We are quite free to take our own decisions. SBI in any case never had too much of an interference. I don’t think there has been anything in particular. There was an overall feeling that such interference was there. The PM has tried to put that to rest.
What about the Pradhan Mantri Jan Dhan Yojana (PMJDY)?
The government asks certain social agenda to be performed by the banks. It continues to do so. For instance the PMJDY is a social agenda. At the end of the day, whatever makes commercial sense, banks will do it, whether prompted by the government or not. PMJDY is a win-win for every single stakeholder including the banks. For the people, it would be creating of a credit history that will enable to get them financially included. For the banks it will open up a good source of business. For the country it would mean less leakage of subsidies, and, therefore, a better a directed use of subsidies.
What is the timeline we looking at on consolidation and merger of SBI’s associate banks with SBI?
At this point in time each of the associates are banks in their own right. They have their niche activity. All of them have a very local identity with a lot of local patronage. There is lot of loyalty that locals have towards them. I would like these banks to develop and become strong banks in their own right and not to be clones of SBI. So, we have tweaked the model on which they have been performing. They have now been instructed to be more of local banks rather than pan-India banks. I think we can go about doing our own business and not look at consolidation immediately. Consolidation will give us some more efficiency, that’s for sure. But it is not as though it is suddenly going to add to my balance sheet. Even today when my balance sheet is assessed by anybody, the consolidated balance sheet only gets assessed. In effect, it (consolidation) is not going to give me an added advantage of creating a bigger bank.
What is the status on plans to raise additional equity capital?
I have a year’s window. It can come at any point of time during the year. What we have done is kept everything ready so that we can come to the market at short notice. The shareholders’ approval, the government’s approval are already in place. The idea is to do that as and when the market is conducive.
How much capital will you raise? Will it be via a follow on public issue, rights issue or private placement, including a possible qualified institutional placement (QIP)?
On the size of the capital raising, we have not taken a call yet. The maximum is around Rs 15,000 crore. We haven’t taken a call on the size or on the actual instrument (FPO or some other instrument).
What are views on the recently announced monetary policy framework making inflation targeting RBI’s primary priority?
At this point there is a lot of confusion. Unless that confusion gets clarified, I myself do not really know what it will mean. While in many countries, the public debt office is separate, but still at the end of the day we all look to the RBI as the lender of last resort. Until some clarity comes in as to how this whole thing is going to be managed, and who exactly will be responsible for what business, I think it is premature for me to talk about it. I would rather that the clarity comes from both the RBI and the government and then we will try to see how we fit into the whole framework.
What are your views on the government’s decision to set up a bank bureau to support creation of independent high performing boards?
By when do we see the transition into a bank investment company?
I do not really know. From what I understand is that first you would have a Banks Board that would look more into insuring of the selection of the right kind of people at the right time for making sure that the kind of gaps we have seen in leadership positions doesn’t occur. It is only subsequent to that you will have an investment company. To have an investment company you must understand that several laws will have to be changed including the SBI Act, the SBI Associate Banks Act, the Bank Nationalisation Act, which something not easily done.
Bad loans continue to remain high. Do you think the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act has not yielded results? Will a bankruptcy law help matters for banks?
We have been pushing for bankruptcy law for a long time. It is one of the first things we talked to the new finance minister as well. The government has responded by putting together a team that is currently working on it. If we really want to make India an integral part of the global economy, it is important to have laws that make it easier for lenders to recover and borrowers to reorganise. It is part of the things that is necessary. The SARFESI Act in itself is a good Act, but there is a lot we can do in its execution that we can do. For that we need the proper kind of infrastructure and resources. We also need to find ways and means to cut down on the time taken in resolving matters. There are ways and means where the existing laws can be made more efficient.
Many companies do not have the collateral to return loans to banks. Corporate debt restructuring (CDRs) will have to come with a sunset clause. What’s the way out?
Why should CDRs come with a sunset clause? Do we see hospitals closing down because people are getting sick? People get sick, people get well. As also businesses, which are synthetic organisms, get sick and also get well. Today it is called CDR. Tomorrow it might be called bankruptcy law. Reorganisation of business is a fact of life. It is not something that is going to go away at any point of time.
SBI has tied up with RIL for setting up a payments bank. How will its operations dovetail into SBI’s main operations?
Today we already have a huge reach all across the country. My customer touch point is in excess of 100,000. However, what we really want is customer touch point in every household. The only way that can be done is through the mobile platform. For this you need somebody with a pan-India presence, who would have the capability of providing the kind of spectrum needed for exchange of data. This is reason we have tied up with RIL, which has a footprint across all 22 circles. We believe they will have a pan-India footprint. It is an experiment. We don’t know whether it will work or not. But we will make a good effort to ensure that it works. It is a leap of faith. So let’s see.
There is a view that banks are awash with funds, but aren’t lending enough fearing mounting bad loans. This is affecting companies’ investment plans and hurting overall growth in the broader economy. How do we address this?
I would like to know a borrower who has not been given funds by banks. I am not aware of any such borrower which has a viable business project and banks are not making funds available to them. Loan growth may be low not because we don’t want to lend, but because we haven’t got viable projects that are being brought to us. However, having said that, I must also say that the kind of due diligence that banks are doing now, are much more stringent than what was done earlier. To the extent that we will ensure that land availability is there, that all approvals are in place and the equity that the promoter is planning to bring is really available. These things are normal, and if we don’t do them, then I would say that we haven’t learnt the lessons from the past. There has been no dramatic improvement in bad loan recovery. But there is much better control so that everybody knows what needs to be recovered, what are the issues involved and the timeframe needed for the recovery. There is much better follow-up with advocates and in the courts.
Do you expect more rate cuts by the RBI in the coming months?
Yes if the inflation figures continue in the same trajectory. If the CPI (retail inflation) trajectory continues the way it is, I don’t see any reason why the RBI will not consider further easing.