 "The legacy I am leaving is much better than what I inherited: Pratip Chaudhuri")
SBI has raised the base rate by 10 basis points and deposit rates by 25-100 bps. Why?
Our credit book is growing strongly at 22-23 per cent year-on-year, with the bank offering the best lending rate (in the sector), that is proving to be a curse. The market for commercial paper is closed and people (companies) are hesitant to tap the ECB (external commercial borrowing) market. All demand is coming in the rupee loan market and we are the biggest beneficiary.
To fund that huge growth, we need resources. After RBI’s liquidity tightening steps, deposit rates have gone up. Unless the bank raised interest rates, we would have faced a loss of deposits.
We do not wait for that to happen and have raised deposit rates by 100 bps in some short-term buckets and 25 bps for those beyond a year. Excess liquidity has come down sharply from Rs 50,000 crore till a month before to Rs 15,000 crore at present.
So far as a lending rate rise is concerned, whenever the cost of funding goes up, we have to transmit it to borrowers.
What will be the impact on net interest margins (NIMs) due to the rate hikes?
A back-of-the-envelope calculation suggests NIM would improve slightly. Till August, it was around 3.55 per cent. It has improved by two bps every month.
Are you maintaining the NIM guidance (expectation) of 3.5 per cent for FY14?
Yes, for now. For a finer projection, we would wait for RBI’s monetary policy (review, on Friday).
With economic growth slowing, are you sticking to the growth targets?
We expect 22-23 per cent credit growth in the current financial year. This is based on RBI and government’s estimate of 5-5.5 per cent growth for the economy in FY14. It also factors in 10 per cent inflation, plus some extra marketing by us.
What is the target for deposit growth?
It is 20 per cent but we are quite behind that. It is about 14 per cent at present. Besides giving a push in the channel to raise resources, it is also a question of pricing.
On Wednesday, the US Federal Reserve decided to continue with its bond buying programme. Has it changed the tone of market sentiment?
There would be some positive impact on the debt market. The more profound impact will be on the equity market. In their case, risk appetite has increased. More money would flow into the Indian market (equity) due to valuation.
Has it provided some relief for SBI’s overseas book?
We had taken a huge MTM (mark-to-market, meaning the revaluation of assets at current prices) loss ($100 million) for the securities portfolio in the last quarter (Q1), on hardening on yields. Now, that will reduce. We were apprehending a similar loss for the overseas book in Q2. The yield on securities moved up, so the spreads for emerging markets went up. We were bracing for another $100-mn loss in Q2, but now this would be $30-40 mn.
Coming back to business expansion, SBI has been aggressively taking over loans from other banks, which has irked many public sector bank chiefs. What is your message to them?
Our message is, if you are an efficient lender, then why not? We were sitting on a lot of liquidity, at least till last month. The focus has been on refinancing investment-grade companies, that too with adequate security cover.
What are your unfinished tasks?
One was merger of (our) associate banks. That I would have liked to do but I was held back due to capital issues. I would have liked to merge at least one bank but the capital position was so precarious that I couldn’t undertake it.
Any other areas you thought of but time was a constraint?
I have created some key portfolios in the bank which should have been created earlier. In the public sector, you do promotions once in a year. So, you need to have adequate numbers of general managers if you want to have positions in top management. Maybe I started planning a little late here; wish I could have been quicker.
Have NPAs (loans going bad) and restructured assets made the job of your successor more challenging?
Not particularly. Whoever my successor is would be heading one of the verticals even now. These pressures are in international books, associate banks, the retail book and also with the chief financial officers and mid-corporates. Only, it gets aggregated at the chairman’s level. So, the person who comes in has battled this problem in his own limited way.
So, you don’t see that much of challenges compared to when you came in?
When I came in, the challenges were much more and they weren’t on the surface. They were slightly suppressed or hidden, if you may say so. And, the deterioration was very sharp. Asset quality happened (dipped) because of not enough attention to credit policies and procedures.
Are you saying you aren’t leaving behind any surprises?
I don’t think so. Our management style has been very (open) and I think all our meetings have been very regular and all managing directors and deputy managing directors who participate get a full ringside view of the bank. The legacy I am leaving is much better than what I inherited.
There was no penalty or accountability on the person who originated the risks. The biggest lesson of the 2008 crisis is that the people who originated the risks were not accountable. What happened in mid-corporates is you just went and lent to whosoever came across as a good customer. If that account did well, fine. If it didn’t do well, you just slip it over to SAMG (Stressed Asset Management Group) and go on doing whatever you did before. Today, we’ve said that if you originate the risk, if you become delinquent, I’m not faulting you personally but that office will bear 50 per cent cost of the loan loss. This makes people more conscious.
With your long innings at SBI coming to an end, what is your wise counsel to your successor?
The person who comes in should be versatile, particularly in credit and treasury functions. And, pay attention to the distribution function. For long, this was left to fend for itself and we confined ourselves to policy. So, there should be periodic visits to zonal offices, regional offices. Whenever my executive secretary visits these places, I get a feedback. Because when I went, everything was sanitised. My advice would be give room to the respective vertical heads but if their performance or their delivery is not up to the mark, then start micro-managing.
What is going to be life after you hang up your boots?
I’ve a cooling period of one year. I’ll be settling in Delhi and for some personal things, I need two-three months time. Once that is over, I would definitely like to do some social work in government schools. These schools teach the largest number of our people. If we are able to improve the conditions (physical and quality of education), it would be a very important building block.