Business Standard

BFSI Summit: Banks driving deposits with value-added services, says Setty

Slowdown in unsecured loan growth due to rising risk rates: SBI chief

C S SETTY, CHAIRMAN, SBI

C S Setty, Chairman, SBI (Photo: Kamlesh Pednekar)

Anjali Kumari Mumbai

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Banks are increasingly prioritising value-added services tied to customer accounts to drive deposits, said C S Setty, chairman of State Bank of India (SBI), on Wednesday.
 
Moving beyond traditional transactional accounts, they are embracing a more holistic service model as far as deposit accounts are concerned, Setty explained.
 
Speaking at the Business Standard BFSI Insight Summit, the chairman of India’s largest bank said that traditionally, a savings account is seen primarily as a transactional vehicle, with less emphasis on enhancing customer engagement.
 
“Today, all of us are focusing on deposit mobilisation, which in a way that the customer started gaining the attention from a point of view that the value-added services, which are linked to his account, have gone up,” he said.
   
“Otherwise, a savings account, which is open, is basically a transactional account. And as long as the transactions were there, nobody really bothered about it,” he added.
 
“But today, every one of us is thinking in terms of providing value-added services to our customers, in a much better manner. It's not that the customer service was faulty or people (banks) were not bothered about the customers, but they are gaining much more attention than what else we can do for the depositors,” he explained.
 
Setty also said that mutual funds and deposits are not competing products but are complementary ones. Despite the rising focus on mutual fund investments, SBI continues to prioritise deposit mobilisation.
 
He said that mutual fund penetration within SBI’s customer base is relatively low. This rate excludes large accounts like Jan Dhan, which aren't designed for financial investment. The mutual fund segment, therefore, serves as an additional option for customers rather than a replacement for deposits.
 
“In SBI, the mutual fund penetration is 1.14 per cent of our customer base, which means that it is not competing, it is complementing each other in terms of the deposits and mutual funds. So the penetration, if you see, is hardly anything,” he said.
 
On the concern over banks' credit-deposit ratio, he said that deposit and credit growth naturally find equilibrium over time. This balance is inevitable. It's a continuous, adaptive adjustment process that keeps both sides aligned.
 
“The deposits and the credit growth, they find some equilibrium somewhere. I think it is bound to happen, whether deposits get accelerated to meet the credit needs or credit gets decelerated to meet the deposit needs, a constant adjustment which will happen,” he said.
 
Setty said the slowdown in unsecured loan growth is largely due to rising risk rates. But it is also because much of the unsecured lending occurs through non-banking finance companies (NBFCs) and micro finance institutions (MFIs), which are also experiencing a deceleration.
 
In November 2023, the Reserve Bank of India (RBI) raised concerns about the extent of bank funding to NBFCs and increased risk weighting on such exposures by 25 percentage points.
 
Following the RBI’s decision to increase risk weight, banks have raised interest rates and become more selective in their lending practices, prompting non-bank lenders to explore alternative funding options.
 
On capitalising the bank’s stake in its various subsidiaries, Setty said that while SBI is open to the idea of selling some stake in its subsidiaries when necessary or listing them if it adds value, there is no immediate plan for such actions.
 
The priority is to ensure that these entities are well-positioned with the right market strength before considering any such moves.
 
SBI has made significant strides with its non-banking subsidiaries, including SBI Life Insurance, SBI Cards and Payment Services, SBI Mutual Fund and SBI General Insurance, which have not only contributed to the value creation for the parent company but have also played a key role in strengthening the financial ecosystem.
 
Of these, SBI has listed SBI Life and SBI Cards, which have a market capitalisation of about Rs 2.2 trillion, and within this the promoter stake is valued at Rs 1.35 trillion.
 
Setty said with a total investment of Rs 6,000 crore in all its subsidiaries, SBI has seen a gross value of approximately Rs 3 trillion.
 
To support the micro, small and medium enterprises (MSME) sector, SBI has introduced a Business Rule Engine (BRE), a fully data-driven lending system, in conjunction with the Credit Guarantee Fund Trust for Micro and Small Enterprises.
 
This has enabled the bank to sanction loans of up to Rs 5 crore in a day.
 
Since its implementation, the SBI has disbursed approximately Rs 28,000 crore in loans through the BRE system over the past six months, demonstrating its effectiveness in streamlining and accelerating credit access for MSMEs. 
Catch all special coverage of the Business Standard BFSI Summit 2024 here: BS BFSI Summit 2024
 
 

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First Published: Nov 06 2024 | 9:38 PM IST

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