It is a reflection of the times that the quarterly results of State Bank of India (SBI), not exciting by a long chalk, have been well-received by analysts and the market. They are considered satisfactory under the current macroeconomic conditions. Underlining the tough times that still lie ahead, the chairman of the country's largest bank, Arundhati Bhattacharya, has indicated that it will take 12 more months for the pace of economic activity in the country to pick up. What has helped SBI is its ability to deliver on its promise to manage bad loans, cut costs and shore up non-interest income. On bad loans, its gross non-performing assets ratio has improved by 75 basis points, on a year-on-year basis. It has been able to increase its non-interest income by a hefty 39 per cent, in good part by restructuring the fees it charges for various services.
But perhaps the most remarkable is its ability to cut costs. Staff expenses have actually gone down by two per cent. This has been made possible by the retirement of 11,000 employees. There is more to it than simply numbers. The bank's management hopes that by being able to say goodbye to staff who had formed their attitudes through decades when the operating culture of nationalised banks held sway and by inducting more qualified young staff it will be able to foster a more professional approach in keeping with the post-liberalisation national ethos.
SBI also began with an advantage. The first to be nationalised, it has managed to maintain an arm's-length relation with the government up to a point because of both what was originally written down and a culture of relative non-interference adopted by the government over time. This has allowed the bank to continue to develop its own management cadre, with most of its chairmen coming from within and their choices being uncontroversial. It is hoped that this arms-length relationship will be allowed to continue, and due diligence of loans such as those promised to the Adani Group for an Australian coal mine will be carried out carefully.
The top position of three of the largest public sector banks after SBI is right now up in the air. While in the case of two the selection will be redone, in the case of another, the chief has failed to get an extension that was earlier considered routine. A key ratio, return on assets, underlines the current state of things. In the last quarter, SBI improved its figure marginally, compared to a year ago; Punjab National Bank stood where it was; and both Canara Bank and Bank of Baroda went down slightly. Strong leadership is particularly needed at this hour. The Reserve Bank of India has disallowed banks from treating their restructured loans as performing assets, as they have been doing, while going into the next financial year. Thus, things will likely get worse on paper for some time to come. The reality on the ground is similar. Unless economic recovery picks up (it is seen as still some distance away), borrowing firms will not be able to step up activity, generate more cash and improve the servicing of their bank loans. Without this, banks' asset quality will not improve and business growth may remain subdued.
