B Sriram, Managing Director of Corporate & Global Banking, SBI, tells ET Now that consolidation will help banks achieve scale and size to meet the demands of a growing economy.
Edited excerpts:
Tell us about the key takeaways from the meeting with interim finance minister Piyush Goyal. Is a bad bank ARC, AMC the best way to resolve stressed assets for PSU banks?
Actually, the meeting focussed on two broad areas. Earlier, we used to have banks meeting on specific issues and may be on specific accounts but this was probably the first time that we as bankers sat and discussed two or three things which were of a general nature.
One is of course how to try and improve the credit flow and that also at the back of a risk mitigated environment. The second is of course how to create banks of scale in an environment where the economy is growing at a very high clip and also for the future how to build the risk and the scale for Indian banks.
These were some of the things but also as part of our discussions some of the ideas that came in terms of trying to see on the back of whatever we have learnt, how best we can progress now with resolutions at a slightly more innovative level or at a faster pace.
These were things that we discussed and most of it the finance minister has also addressed at the press conference.
As far as the ARC or the structure is concerned, we thought it would be advisable for us to set up a committee of senior experienced bankers to try and look at it. There are two-three objectives. One is of course that the decision making in respect of a resolution that we can take forward today needs to be ratified by a large number of banks so is it possible for us to look at a structure where that decision-making process becomes much faster.
The second is that a lot of bandwidth and quality time of senior executives across banks is now spent on these decisions and on these resolutions. Is there a way in which again this bandwidth can be released for the top executives to focus more on sales, marketing, credit flow and other factors that need to be addressed rather than focussing a lot of time on all the resolution matter which is of course very important.
These were the two prime considerations that we thought the committee can look at. The committee has a very short time-frame of a couple of weeks to come and discuss and plan and then obviously the banks will sit together and start to discuss that and probably take it forward.
How will this materialise because BoBs Mr Jaykumar is likely to strategise takeover of good loans for banks under PCA. Does this really mean that banks under PCA may then actually diffuse as bad assets will be taken over by ARCs, AMCs and good assets by other better banks while the government has reiterated that they stand committed to support banks?
There is a bit of a confusion here between the PCA banks and bad loans. Bad loans could be in any of the banks, PCA, on the other hand, is an early morning system by the RBI based on three broad parameters of capital, profitability and non-performing assets. They have tried to figure out which are the banks that need a little bit more handholding.
There are ways and means in which these banks are put into certain risk threshold groups and then there are certain actions that the bank boards would need to take themselves to try and come out of some of these weaknesses.
It is likely that all the mandatory actions or discretionary actions would not be the uniform across banks. It is also likely that there are certain directions which are applicable for some banks and may not be applicable for some others. PCA is a corrective action that needs to be taken as soon as there is a perceived weakness by the regulator and that is where it goes.
But as far as bad loans are concerned, irrespective of whether the bad loan is in a PCA bank or in a non-PCA bank, the import of the committee is to see as to how that asset needs to be resolved and what is the best way in which the time that is taken by every bank irrespective of what state they are in. The time taken towards resolution is reduced and quality time taken for and released for other businesses.
I wanted to chat a little bit about SBI in particular. You have already hiked the MCLR by 30 bps so far. By how much would you expect to further hike further deposit rates and MCLR and what would be the margin impact?
If you see the Gsec yields, the market had already factored in a 25 bps increase which came the recent policy of the RBI. To some extent, there could be stability regarding both the interest rates as well as the bank lending rates.
At least for the foreseeable future, we are looking at a lending rate which has bottomed out in some way at those levels where we are currently seeing them. I do not see another rate hike at least in the next couple of quarters.
What are your own capital requirements for FY19? How much of additional government capital infusion are you expecting and how much would you raise yourself via asset sale of subsidiaries as well as from the capital markets?
Today we are actually comfortable on the capital front and as far as our results for last year is concerned, we are pretty well capitalised. We do not have any immediate need for raising capital but as we have stated in our annual results earnings call as well, we are looking at a few non-core businesses.
There is no clear timeline. We are just considering them but at the opportune time, we will look at how much more is required. Today we have also factored in a credit growth of around 10% in our calculations. As far as capital is concerned, we are quite comfortable at the moment and as we go along into the year, we will see whether it is required and in what form we will be able to raise it.
The government has left the decision to consolidate to banks. However, majority of PSU banks are weak and merging them with better PSU banks, may further risk the better quality PSU banks. What is your view on the impending mega consolidation that is in the pipeline?
What we found out when we had the mega merger with five associate banks and the Bharatiya Mahila Bank was that while there were a few challenges in the first 6 to 8 months, the benefits of scale, cost efficiencies, the benefits of providing the world class products to our customers has now started to kick in.
Some of the products that are not accessible in some of the smaller banks is now made available to them. So the benefits have now started to creep in and that is what is part of our discussions the other day. We had also made a presentation to the other banks as to what are the challenges and what are the benefits that has accrued. It is up to the banks.
What are the strengths and what are the possible synergies should be considered before merger. Whether it is weak or strong, that steps comes later. The first and foremost point to my mind is how much of a good pairing will some of these banks arrive at in terms of looking at certain partners.
That is a very crucial consideration in any merger. But there is a huge advantage once you get the merger right and once you stabilise and once you come to this level. I am sure there is huge advantage not only to the bank but also to the customers at large with the country going in excess of 7.5% growth rate and becoming one of the top economies of the world. Post merger, SBI is only the 50th in world ranking.
There is scope not only for SBI but also for few more banks to achieve that scale and size to meet the demands of a growing economy.
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