The good times will last longer, says public sector bank CEOs panel

The going has never been so good for public-sector banks (PSBs). K V Kamath, chairman Nabfid & Jio Financial Services, in Business Standard BFSI Insight Summit’s first Fireside chat had said this was the best year for Indian banking in 50 years. In this backdrop, BS Consulting Editor Tamal Bandyopadhyay spoke on the situation’s sustainability with some of India’s leading PSB chiefs — C S Setty, managing director (MD), State Bank of India; K Satyanarayana Raju, MD & CEO (chief executive officer), Canara Bank; and Ashwani Kumar, MD & CEO, Uco Bank. Edited excerpts:

How long will the good times last?

Ashwani Kumar: Yes, good times are here and the question is how long they will last. Currently, the high-frequency indicators – GST collections, e-way bill generation, Fastag collections and road construction — are at a record level and PSUs’ order book is around Rs 7 trillion. The order book of 300 listed companies is around 5 times their quarterly revenue. With all this and the way the government is pushing through the budgetary announcement and the PLI (production-linked incentive) schemes, growth should continue.

With growth, there will be good credit demand. So, interest incomes will continue to rise and there will be a chase for deposits. There will also be some pressure on the NIM (net interest margin). But PSBs are managing their deposits well. 

K Satyanarayana Raju: Loo­k­ing at how long we have worked to reach here will give you confidence on how long it will continue. Two decades ago, with new-generation banks coming up with new technology, PSBs were struggling for investments in technology, and meeting the requirements of consumers.

In the last 8 years, there has been a sea change with the hard work put in by banks, government, regulator, etc. The injection of money by the government was for a good cause. Many reforms have taken place. There is a change in the working of PSBs. Now, PSBs have risen to the occasion and know what the client's requirements are. They started gaining people's trust, so even as they lost market share earlier, people will come back to them. 

All PSBs have realised it is a buyers’ market and developed their own research wings. They know how to do their stress tests, what is happening globally and how to take precautions. In all these things, professionalism has come in almost every PSB.

Now, every PSB’s balance sheet is clean and they are focusing on fee income, and effectively managing costs. These are getting the profits. So, the steady growth will continue. 

C S Setty: The banking sector’s performance, especially PSBs’, is a combination of many things. One qualitative change among PSBs is better appreciation of risk, both at the macro and micro levels.

We learn from our mistakes. Yes, there was a series of judgement errors that created a cycle of NPAs. But, the clean-up has happened and the twin balance-sheet problem has now turned into an advantage – both for banks and companies. Both are poised for growth. 

Mr Setty, have you seen a deposits war like today in your three-decade career? How is the banking world preparing itself?

Setty: Branch outlets are essentially deposit-mobilising points, though they deliver other services too. It is true savers have other avenues as well, not necessarily financial products, even the non-financial ones.

Among banks, the fight for deposits will continue for some time. The structure of banking in India is such that asset build-up is supported by deposits, unlike overseas where market borrowings are a major component. So, if any credit growth has to happen, deposit growth is needed. 

On what the banks have to do, we have earlier seen much higher competition for deposits, but it could be handled because credit growth wasn’t that intense. Today, it gets aggravated because credit growth is also significant. So, the requirement for liabilities is growing. 

A lot of banks want to maintain their market share. Now,  will this competition for deposits will raise the cost of deposits? In our view, a savings bank is an operational account, not a savings instrument. There is a shift towards fixed deposits, whenever the interest rate moves up. We always want to ensure savers are compensated properly and the deposit rates are aligned with the market. The interest rate alone will not mobilise the deposits. The central point of deposit mobilisation is when you have a franchise, and what is determined is the quality of customer service. People would stay with you if they have a good experience and the private banks also are focussing on the customer experience.

Raju: We have a brick-and-mortar network and people in remote areas will prefer these outlets. And by offering a higher interest rate on Current Account Saving Account (Casa), I don't personally believe Casa will increase, as it boils down to customer experience. Our focus has been on improving consumer experience.

Kumar: In today’s scenario, every customer wants all facilities at one place. As we are engaging them on our applications they will not shift and the Casa will remain strong. 

We hear there are cracks in the retail segment because of the interest rate cycle. The so-called SMAs (special mention accounts) where 30-day/60-day failures are happening and we will see the banks starting accumulating fresh NPAs, fresh slippages. Is that right? 

Raju: Before Covid, the repo rate was the same as today. During that time, people paid, and they are prepared to pay at these levels as well. If it is further increased, then we don't know what will happen to their incomes and paying capacities. 

Also, all the banks nowadays have flexibility on elongation of their instalments or either to increase their repayment obligation. Such flexibility has come up in the products. 

Setty: Every bank has a different set of retail books and this broad brush approach that the whole of the retail book is under stress is an overstatement. The hike in interest rate will definitely have an impact on the ability to pay EMIs (equated monthly instalments) and it all depends on when the banks have acquired these portfolios – during a low rate cycle or not.

Two important factors – all of our personal products are moderately priced. The other thing is that the loan-to-value ratios and mortgages are very modest and there is sufficient equity for the borrower to pay. Also, we are very strict on the NMI (net monthly income) to EMI ratios. If you are not taking care of these three guardrails, then your retail book is going to behave differently. 

Kumar: The last increase in interest rate was in February 2023. Since then, there has been a pause and we have been getting reasonable EMI payments from our customers. If you look at the claim figures, they are also showing a decline. Many customers have accepted a revised EMI structure. Between the pandemic and now, income levels have increased and people have the capacity. Things are under control. 

Is there anything that you want from the government?

Kumar: The only thing that a bank cares about is the level of NPA. The way banks have recalibrated themselves in all these years, I don't expect anything to go wrong in the times to come. As far as the government is concerned, they have been supporting the banks in the bad times. Now it’s our good time, it's our turn to support the government.