Finance Minister P Chidambaram in his Budget speech indicated that SBI is too small by international standards and it must become a global player. How do you want to go about it?
Based on assets, SBI's present position is 82nd in global ranking. Internally, our goal was to be in the league of the top 50 by 2008. But the finance minister has raised the bar. We need to speed up the process. There are two ways of going about it "" acquisitions overseas as well as on the domestic turf.
We have acquired 51 per cent stake in Mauritius' fourth largest bank that has a strong retail presence. Now, we are closely looking at three countries in Asia and Africa for possible acquisitions. The target is medium-size banks with an asset base of $50 to $200 million. We will be able to seal a few deals over the next three months.
Also, we are looking around aggressively in the domestic market. The options are open "" it could be both in private as well as public sector.
So you have the government's blessing to take over a PSU bank?
I cannot react to this question now. The finance ministry has the answer.
How about merging your seven associates and one subsidiary with SBI and make it big?
A virtual merger within the SBI family has already taken place. We have a common platform of technology, treasury and business processes. All high-value loans are being integrated. Within the next 15 months, I will have the consolidated balance sheet of the group by pressing one button. You must also remember that we are into insurance, mutual funds, factoring and credit card businesses. Our branches sell all products.
Any new business on the cards?
We will enter the pension segment, too. The moment the government finalises the norms (for entry into the pension business), we will move our application. Our information technology subsidiary will also take off soon with a domestic partner.
What kind of a business growth are you looking at?
Our loan growth this fiscal year is above 20 per cent. The growth has been witnessed across all segments "" services, retail, agriculture, small and medium enterprises, and infrastructure. This hasn't happened in 36 years of my banking career. The undertone is extremely upbeat.
The retail segment of our loan portfolio has been growing at 30 per cent. Right now, retail loan accounts for about 23 per cent of our total loan portfolio of about Rs 1,80,000 crore. We hope that this will grow to 30 per cent in the next two years.
Is this growth sustainable?
Certainly. Tell me, which sector will not grow? You look at any sector "" cement, pharmaceuticals, bio-technology, chemicals, infotech and IT services "" all are growing. There is a huge appetite for credit by the corporations. I won't be surprised if we grow at more than 20 per cent next year.
In the rush for building credit portfolio, are you compromising on the quality of assets?
The percentage of non-performing assets (NPAs) in SBI is actually coming down. For instance, the gross NPA of SBI is now around 6 per cent and net NPA is 2.56 per cent. Some of our associate banks have zero NPA. The average net NPA of the SBI family could be around 2.4 per cent. The quality of assets is improving since the corporations are doing well and are in a better shape to pay off banks loans. We have also aggressively provided for the NPAs.
How safe is your bond portfolio? Will it be able to withstand the pressure of rising interest rates?
We have already shifted a part of our SLR portfolio to the held-to-maturity (HTM) category from the trading basket. This will shield the securities from any rise in rates as we will not be required to mark-to-market the securities under the HTM category. The shifting will have a marginal impact on our balance sheet. We will de-risk the portfolio again next year.
There has been a huge credit growth. In fact, your incremental credit deposit ratio is over 100 per cent. Do you see any problem in the growth of deposits to support growth?
There has been no problem so far. We will securitise some of our assets to tide over any tightness on the deposit front. We will also go for infrastructure bonds to raise long-term liabilities from the market. We have a plan to raise $1 billion through medium-term notes (MTN) overseas. The first tranche of this MTN "" $300 million "" has already been raised. The balance will be raised next year.
This will be used for our overseas operations. We have opened three new branches this year and there will be more next year. The focus is on developed markets like the UK and the US to neighbouring countries like Bangladesh and Sri Lanka.
Can SBI compete with new private and foreign banks on the technology front?
The SBI family has the largest ATM network in the country "" close to 5,000. Our nearest competitor ICICI Bank has about 1,800 ATMs. In January 2004, our ATM network recorded 50 lakh transactions involving Rs 500 crore. In January this year, there have been 2.1 crore transactions and the funds involved were Rs 2,800 crore. Every month, the growth has been 10 to 12 per cent.
The 13,640 branches of the SBI family are computerised. Out of these, core banking solutions have been put in place in 1,600 branches. In other words, these branches are networked and the customers of these branches have been doing bank banking and not branch banking. Over the next nine months, all associate bank branches will be networked. By March 2007, SBI will be fully networked. This is possibly the most ambitious technology project across the globe.
Now that you have been given managerial autonomy, how do you plan to take advantage of the package?
We will reward competent employees. We are in the process of introducing a performance-linked salary package. Over two lakh SBI employees will now have two parts in their salary "" a fixed portion and a variable one that will be performed-linked. We will also recruit officers from the market at higher level.
Are you over-staffed? Will you cut the flab?
The challenge before us is to re-skill and retool people and ensure a smooth transformation from manual to technology banking. The work on business process re-engineering is on. The consultancy firm McKinsey is helping us on this.
Is the 20 per cent FII limit a problem for SBI's growth?
It's up to the government to decide on this.
But doesn't this come in the way of raising equity from the market?
At present, we have a comfortable capital adequacy ratio. If we need capital, we can always raise subordinate debt. I won't rule out the possibility of raising equity entirely. If we need to raise equity, I am sure the government and the Reserve Bank of India that owns SBI will take appropriate steps.
What's your plan for the subsidiaries like SBI Caps and SBI Mutual Funds?
Asian Development Bank holds 15 per cent stake in SBI Caps; Societe Generale holds 37 per cent in SBI MF; GE Caps holds 40 per cent in our credit card venture and Cardiff holds 26 per cent stake in SBI Life. Our experience is that in our non-core businesses we do well with a foreign partner. We are looking for a partner in SBI Caps.
