Prolonged money tightening will hurt both banks and industry, says SBI MD and CFO
Diwakar Gupta winds up an almost four-decade-long fulfilling innings at SBI at the end of this month. As Managing Director and CFO for the last couple of years, he has handled with aplomb, the finances of the biggest bank in the country.
An articulate spokesperson for the bank, he has never shied away from fielding tough questions from analysts or reporters. But he is glad that he won’t have to do it now.
For someone who gave up an admission at IIM Calcutta and joined SBI in 1974, he has done very well in his career. Ask him about this and he says with a twinkle that by the time one is fifty, one realises the hand of destiny and that one doesn’t have an active role in the way things shape out.
He says he follows a simple mantra: “Focus on the immediate. Tread the narrow and straight path. Don’t worry too much about the long term. You will get what you are destined to get.”
As with most SBI officers who reach the top, his varied experiences have given him a wide perspective and great pride in being part of the bank.
He says it has been a great brand to work for and cherishes the freedom to experiment that was available in the bank.
He captures his Zen-like management philosophy succinctly, saying: “In matters of relationship flow like water. Get along with every one, but stand firm when it comes to a principle.”
Excerpts from the interview:
In your view, what will be the impact of RBI’s recent measures?
The RBI is trying to curb the steep fall in rupee by mopping up excess liquidity. The intent is to reduce the excess liquidity which banks seem to be using for taking speculative position in the exchange markets.
However, a prolonged money tightening policy will hurt both banks and the industry. If these measures continue for more than three months, then banks will be forced to raise lending rates due to higher cost of funds. This will in turn lead to more stress in asset quality for the entire sector. Also, banks will witness significant treasury losses in the September quarter, on their marked-to-market portfolio of SLR (statutory liquidity ratio) investments.
Aside from currency, the RBI has also been concerned about high inflation. What are your expectations on this front? Does a subdued growth present a case for the RBI to cut rates?
It is very difficult to assess this. On the one hand, there are lot of expectations from the Government to undertake fiscal measures. But if, for instance, they unwind fuel subsidies, the suppressed inflation related to administered prices will start to show. Again, volatility in food inflation is structural and depends on the monsoon. Hence, it does not matter what the monetary or fiscal policy is.
But if we look at the projects — new, completed or the ones in the pipeline — all of them are down 40-50 per cent from last year. And if inflation is structural, because it is supply-side led, then we need investments and growth to pick up. So there is a very compelling argument for growth. A dear money policy is not a great recipe for growth.
What are your thoughts on the new banking licences?
Our banking system is highly fragmented. In the developed economies, the top 3 or 4 banks account for 70 per cent of the banking activity. In our country, SBI accounts for 17 per cent, and the next biggest bank contributes 8 per cent. The top four banks account for less than 40 per cent of the overall activity.
If India is the seventh largest economy in absolute terms, our largest bank is sixtieth in the world. Thus, there is need to bring the banking economy on a par with the real economy. So we do need new licences for better financial inclusion and more penetration.
In spite of SBI’s strong retail focus, the loan growth in this segment has been below the overall loan growth for the bank at 21 per cent. What is the outlook for the retail segment?
Overall, in the context of the economy, our growth has been good. Our retail loans have grown by 15 per cent in 2012-13.
Within that, auto loans have grown by 35 per cent. If you look at our savings and current account deposits, they continue to constitute 46 per cent of overall deposits.
So the growth has been healthy and we don’t think retail will be able to grow faster than that. The real issue will be with the large- and mid-corporate segment, where if we are not able to grow our lending business, then the overall loan growth will be impacted.
SBI focussed on lending to high-rated corporates in 2012-13. This impacted net interest margins (NIMs) due to lower yields on such loans. What is the outlook for the current fiscal?
A similar trend will continue even this year. Given the liquidity situation we will continue to lend at lower margins to safe, less risky assets.
Do you see further pressure on your asset quality?
Yes, definitely there is more pressure. Earlier, we were of the view that by March this year the asset quality would improve. But as the economic environment remains challenging, the loan quality will also continue to reflect this.
We believe that the pressure on asset quality will continue this year. Our provisioning costs will continue to be above 1 per cent. Our restructured pipeline is Rs 5,000 crore (exclusive of state electricity boards’ restructuring) up to September.