Integration of the human resources is the biggest challenge before State Bank of India, which has initiated the merger of its five associate banks within itself, Arundhati Bhattacharya , Chairperson of the bank told Manojit Saha in an exclusive interview.
Edited excerpts:
The cabinet has approved the merger of SBI and its associates. What steps is the bank taking to complete the merger?
There are many steps being taken simultaneously.
First, there are four entities, in the merger process, that are listed, including SBI. We need to do the valuations of the entities. We have to come up with a scheme of merger which has to be notified so that the minority shareholders can register their grievances, if any, which we have to address.
We are looking at various products to see which (ones) need to merge with whom. So there is a team working on the accounting side, on the IT side and teams that are looking at other legal requirements and compliance. There is also a team working on the human resources side. This is an important issue which is at the heart of the entire merger process.
Will some branches have to be closed down due to the merger?
We are looking at branch rationalisation but our intention is not to close down branches. There is no meaning having two branches sitting side by side. We can close down the branch which is at a less convenient location and open them in other parts of a city or town where we have less of a concentration.
And it is not necessary that only associate bank branches will get closed. We may also decide to shift SBI branches if they are not well located.
What is the biggest challenge that you have to address?
In any merger, the biggest challenge is always integration of human resources, because the people who are coming in have a lot of apprehension. Even for the people in the bank into which the other banks are merging, they also have a lot of apprehension. There is always an apprehension that opportunities will go down. There are apprehensions of displacement. Many of these apprehensions are unfounded. For example, there may be someone from north India who is in an associate bank in south India. It will be difficult for that person to get a transfer back to North. But it will be possible, when the associate is merged with SBI.
We also learn from the media that there are some customers who are apprehensive as they feel they will not get the same kind of personalised attention. We need to allay their fears. We assure them, if they were getting personalised attention, they will continue to get the same. Not only that, they will get far better reach, far better products because we are going to roll out state-of-the-art products simultaneously at all of these institutions. I would like to reassure them that the level of customer service will be better post the merger.
You have said that the merger will be completed by the end of the financial year…
I don’t think anything can happen before 30 September, so it will be in the second half.
The SBI associate bank employees will have a third benefit post the merger. What is the cost that will accrue to the bank due to the merger?
We have given a figure of Rs.3,000 crore. The actuaries are looking into it, validation is going on. At the same time, all these associate banks have quite a lot of fixed assets – the valuations of which are also going on. So, if you consider net- net, I do not think there will be any outgoes so to speak.
So far as capital adequacy is concerned, I think it will remain where it is. Regarding the profitability parameters, they could be some impact in the short-term but the impact will not stretch beyond 2017.
Will SBI enter into the top 50 banks globally following the merger?
Not immediately because the value of the rupee is also a factor which determines that. But we will aim to be there in the medium-term, that is, in three to five years.
Will SBI be adding more circles and more managing directors post the merger?
We have 14 circles now. More or less, two more circles will be created because in some states the number of branches is too many. But the business numbers should also justify the creation of a circle. If the numbers do not justify then it is difficult to create a circle because there is an administrative cost to it.
So far as new MDs are concerned, we may not need them immediately. Going ahead, we may need two more managing directors, not more than that. The national banking group is the point of concern since the numbers will go up. We are adding on a bank which is equivalent to the next biggest bank in the country… or slightly less than that…it you put all of them together (total business of all the associate banks).
The request for two more managing directors is with the government for the last two years. This will require amendment of the SBI Act. We wanted MD position for CEO and for the international banking group – which is a large part of the balance sheet, around 17 per cent.
There is slowdown in credit growth in the banking sector in the previous financial year, but public sector banks loans grew at a much slower pace than the private sector – a point that was raised by the Reserve Bank of India also.
Credit growth will pick up in the second half, not in the first half. The reason why private sector grew, which is also applicable for us, is due to refinancing of completed projects. This is happening by cannibalising (businesses) of the smaller banks. We are able to offer a rate which is lower than what the smaller banks charge. Loan growth was not because of new investment or new demand.
Everyone is focussing on retail these days, even the public sector banks are getting into the act. But their rates are sometimes an obstacle because the rates have to be very competitive. Unless you offer a competitive rate, it is difficult to get new business.
What business do growth you see in the current financial year?
We are projecting a credit and deposit growth of 12 -13 per cent each for the current financial year.
Deposit accretion has slowed down due to softening of interest rates. Is that an area of concern?
For the first time, deposit growth has fallen below 10 per cent in the banking system in the last two months. I hope the 7th pay commission will reverse the trend. We hope to see lot of deposits coming in.
Focusing on retail will also mean thinner margins. How do you address that?
When interest rates are coming down, you cannot have high margins. So, if these are the margins that we have to survive then so be it. Last year, because of the tight liquidity we could get treasury income which we have estimated. But now the central bank has given everybody to understand that they are looking at a neutral liquidity stance, so hopefully on the treasury side, we should be able to do it better.
SBI had put out a watch list of Rs 30,000 for bad loans which many analysts thought was aggressive as your private sector counterparts have given a larger list, though they are much smaller than SBI’s size.
Yes, because we are classifying much more than the competitors that you are talking about. We think we will be in line with the projections because we have classified accounts which are there is others’ Asset Quality Review (AQR) list. There are banks which have not classified accounts as NPA which are there in their list. We have done it on both sides.
Do you expect gross NPA, in absolute terms, to increase further?
Gross NPA will go up because when you make a classification, non-fund based exposure is not there. Subsequent to the classification, many of the bank guarantees get called, line of credit starts devolving so the non-fund based exposures turn NPA.
We have given a guidance of Rs 40,000 crore slippages for the entire fiscal. So, the absolute numbers will go up.
However, I believe that, come the second half of the year, you will see the numbers (gross NPA) starting to reduce. The first two quarters will still have some amount of pain. I am confident that from third quarter, the numbers will come down – the cycle will turn.
Provisioning requirement will also go up, as they slip further in asset classification over time. So that is why resolution becomes important. If assets come back track, that will ease provisioning requirement.
RBI has recently released a new set to debt restructuring norms, namely Scheme for Sustainable Structuring of Stressed Assets’ (S4A). Do you think that will help in resolution?
Only a few companies will be eligible for S4A because, for example, the norm says you can only take the current cash flows. Current cash flows are happening in many of the units with very low capacity utilization. So if you take the current cash flows, it really does not work, rather you should take the cash flows where the capacity utilization are at a higher level. It has to be a realistic assessment. Second, the norm said banks have to maintain the current rates of interest. The fact is, the borrowers are paying very high interest rates because the penal rates are in operations. If you continue with those level of interest, it does not look it as a workable situation. So, S4A is not meant for anybody and everybody. It has to be done very selectively. We have given the feedback to the regulator.
What is your view about the Strategic Debt Restructuring norms which was released by RBI last year?
Unless there is a buyer standing by, doing an SDR does not make sense. Today we will not invoke SDR unless we are sure that we will find a buyer.
