Merger with State Bank of India (SBI) might not happen at least for a year or two as the time is not ripe, says SA Ramesh Rangan, Managing Director of State Bank of Patiala (SBP). The bank, which is one of the five associate banks of SBI, has been seen as a favourite to merge with the country’s largest bank. In a freewheeling discussion with BusinessLine , Rangan talks about the economy, the non-performing loan situation and the Jan-Dhan scheme. Edited excerpts:

What is the update on SBP’s merger with SBI? Has anything new come about?

As of now, I think our Chairperson (Arundhati Bhattacharya) has gone on record to say that, in the immediate future, it is not happening. So, it might not happen in this fiscal and may not happen in the next fiscal also. Unless the economy stabilises and banks gain some inner strength, a merger is not possible. Our Chairperson is very clear…It is not even on the radar for now.

Her predecessor, Pratip Chaudhuri had gone on record to say that at least one associate bank will merge with SBI by the end of FY 2014. What has changed between then and now?

The financials. All banks have to build up their core strength. Right now the asset quality across banks is in a bad shape. You don’t do mergers when the industry is in a bad shape. You may sink together.

The environment seems to be improving. Once the industry comes up, the asset quality problem gets sorted out. Would I adopt a sick baby and kill it in the ICU? It is not fair. Over the past one year, the strength of banks has gone down internally. There are pressures, including additional need for capital, which the Government cannot give.

Also, there is additional need for provisioning for assets, as the largest of the large industries are showing signs of serious trouble.

What do you think are the three things that this new Government has put in place or should put in place that will cause the turnaround that you are talking about?

They have brought in a lot of policy clarity on environmental clearance. With the coal policy, they are going to auction off the blocks so that the country does not suffer from coal shortage.

They are also bringing in things so that independent power producers get their projects back on track. They are also facilitating completion of many road projects. If they bring the power and road projects back on track, the economy will improve. The rest are derivative industries.

What is the NPA situation for your bank?

Our overall NPA (non-performing asset) situation is a bit on the negative side. At 4.5 per cent plus (of total loans), it is not very good and we have to bring it down.

Most of the slippages are in the corporate sector and we cannot do much there because in corporate lending we have to follow the leaders. In the farm, SME, and retail sectors our NPAs have come down over the 2012 levels in percentage terms. So, that is the positive side.

So, what are you doing to improve the bank’s NPA situation?

We are focussing on recoveries more. We are also restructuring some assets and we will also look at asset sale to some asset restructuring companies.

What has been your progress on the Jan-Dhan front?

We have opened about eight lakh accounts, and six lakh RuPay cards have been issued for these. The remaining account holders too will be issued the cards.

How does the Jan-Dhan scheme differ from the Direct Benefit Transfer scheme where banks also went after opening the accounts?

In this scheme, it is the bank’s job to get a bank account irrespective of Aadhaar (unique identification number). Initially it was a compulsion…now I don’t think it is a compulsion.

I see it is a good business proposition. Though for now it is on a cost basis, but the profit will come over a period of time because my investment is only one-time. If I open an account for an individual, he becomes my customer for life. A savings bank customer, especially in villages, remains a customer for life.

We will link other products to the account. It is an investment. It has not really (negatively) impacted the bottomline of my bank.

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