The Hindu Business Line : SBI for bigger market pie with better profitability

The largest bank in the country State Bank of India is hoping to regain its lost market share by improving its balance sheet size, instead of focusing merely on physical size. With a network of around 9,000 branches and 6,000 ATMs, what SBI does often becomes the benchmark for other banks.

The bank is trying to strike a balance between its role as a commercial bank that will earn higher returns for its investors and its role as a nation's bank by lending to sectors such as agriculture and infrastructure.

One way of rewarding shareholders is by listing the subsidiaries, which are `jewels in the SBI crown', as the Chairman, Mr O.P. Bhatt, describes them. While this would make raising capital for the associates easier, it would also add value to the parent's shares, he said. Experts of a recent interview to Business Line:

On taking over as Chairman in July, you had said one of your priorities was to increase SBI's market share. Have you been able to achieve this?

Till September, the decline in market share continued. In October, we saw some growth. But whether it is a statistical blip or error I don't know. But SBI has been losing market share over decades and it cannot be reversed overnight.

It is important to sensitise my people. I don't want to gain market share at the cost of the bank's profitability. I can easily increase market share by buying Rs 10,000 crore of deposit. For SBI, it is not difficult. But I am trying to shed bulk deposits or at least not grow them. I am also not interested in short-term loans.

My policy is to target higher market share, but not at the cost of bank's strength, soundness and profitability.

Our credit growth is a little over 20 per cent. There is gap between deposit and credit growth. But for us it is not an issue because we have been raising capital. Deposit is growing on a higher base compared to advances. So, a 5 per cent growth in deposits may be higher as compared to a 10 per cent growth in advances in terms of absolute numbers.

You have started a new ad campaign recently. Are you trying to change the bank's brand image?

We are trying to unlock SBI's brand equity. I want people to see SBI as it is, but with value. We may not have coffee vending machines or posh offices. But we have 9,000 branches and 6,000 ATMs.

I have chosen to do things, which are more important to my customer. There is no hype, no boasting, nothing untrue. What I am doing is brand repositioning or unlocking the value. I am going to reposition branches and improve their ambience. To begin with, I want to do it at 500-700 branches, which will be selected at the regional level.

How has SBI's shift in focus from corporate lending helped?

It is a function of yields. Yields are lower in corporate lending. So, why not give more loan to buy homes rather than to corporates? It is a business strategy. But as a leading public sector bank, we have some obligations. We are the nation's bank and we will be doing a disservice if we do not meet these obligations. We have to put money in large projects like ultra mega power projects, but only after due diligence.

Are you trying to increase your fee income?

We are getting into structured products with help of some other banks, may be foreign banks. We don't have the products, but we have customers and the network. It will be on a fee-sharing basis. We are trying to step into merger and acquisitions overseas. We are also offering trading — (that is) online trading with Motilal Oswal. Soon SBI Caps will also offer it, so there will be multiple choices for customers. We are getting into gold in a big way — wholesale, retail and consignment.

How will the amendments to SBI Act help the bank?

To begin with, the number of Managing Directors may go up from two to four. This will make the management of the bank's operations slightly easier. If the RBI holding is brought down from 55 per cent to 51 per cent, we will have more elbowroom to raise money. We will also be able to raise money through the subsidiaries.

What about the plans on listing the subsidiaries?

I want to start with State Bank of Patiala, State Bank of Hyderabad and maybe State Bank of Bikaner and Jaipur. These are 100 per cent owned by SBI. There is lot of value in these shares. When they get listed, SBI's share price will also shoot up. SBI owns them but the market does not know their value. Now, SBI's share price does not reflect the value of the jewels it owns. We need to unlock this value.

Is losing talent a concern considering that the bank received over 4,000 applications under the recent exit policy?

In the exit policy, the kind of people, at least the majority of them who were permitted to go were those who had lost chances of promotion and probably were frustrated. We feel that we have pockets of overstaffing and understaffing. Four thousand employees out of 2 lakh are just 2 per cent.

Simultaneously, we are also promoting people and recruiting probationers. So it is a good churn. Old and dissatisfied people are going out and young and energetic people are coming in.

What are the plans to consolidate overseas operations and expansion?

We will acquire banks overseas only if they are sizeable. Banks worth $3 million or $5 million does not make business sense. In any case, we are not actively looking (at overseas acquisitions).

The bank is also planning a re-look at its own overseas operations. I will not grow market share at the cost of profitability. It does not make sense to have a few branches overseas. I would prefer consolidating their operations rather than acquiring a few more branches.

Do you think the recent CRR hike impacts banks' profitability?

Yes. It will affect banks' profitability in two ways. One, no interest is paid on increased CRR. Our money is impounded (without any returns). Two, the increase will affect liquidity. Deposits will become costlier. We may not be able to pass on the entire cost of funds by hiking lending rates. So our margins get squeezed. But the full impact will be felt only by next year.

Will it affect credit growth? What would be the Reserve Bank of India's intentions?

I think the RBI is moving gently and conservatively. The central bank is nudging banks in the right reaction. It is not a knee-jerk reaction. The RBI is not doing anything that will disturb the growth of the economy.

But they (RBI) have concerns, that there are sectors or elements in the economy that must not grow at this high rate because it could cause overheating or an asset bubble. It is the RBI's duty to be responsive to these concerns. But they should also balance their act.

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