State Bank of India, the country’s largest lender, has adequate capital to meet its current business needs, chairman Arundhati Bhattacharya said.
“Our capital adequacy is quite good and well above what is mandated…we do not have any issues having sufficient growth capital as of now. Depending on how the Indian economy grows and if it grows at a very fast clip of 16-18% it’s only then we see an immediate requirement for further growth capital…that way the SBI is very well placed.”
‘Past the hump’
On the issue of non-performing assets, she said that the Indian banking sector was likely past its hump.
“We didn’t really have any transparent or open manner of resolving stress tests… today with the bankruptcy law that gap has been filled… the law is still in its infancy and our hope going forward is that it will continue to perform the way it was meant to perform….if it performs the way it was meant to perform then definitely going forward in India non performing assets will take a different shape.”
“India is one of the youngest countries… which is adding a million people to its workforce so the dependency ratio is very favourable in India and given that the macro-parameters are very okay in India we have no other direction to go but to go up and grow… it’s the pressure of demographics that will make India grow.”
“There is a lot of potential in the country and we should not be diverted by this one issue of non performing assets as is it under the process of resolution….Going forward we should have a much better and more stable regime in terms of assets and stresses that come on to them.”
The SBI is in the process of demerging its U.K. business — currently comprised of one main branch focused on wholesale business and 11 branches focused on the retail sector.
The London main branch will remain a branch of SBI while the retail branches will form a subsidiary that will be incorporated in the U.K. The demerger is set to be completed by the end of the year or early next year.
“There will be much greater focus on the retail business because it will be on its own — it will have to prove itself on its own…it will be totally local operation.”
Ms. Bhattacharya said that the bank would try to bring the “very best of IT” and processes being used in India to the U.K. subsidiary that would work with the Indian diaspora and beyond, with plans to introduce services already in place in India such as the account opening machine and debit card printing machine. “We will try to bring the best of products that we have…many of the products we have in India are not available anywhere else in the world.”
She acknowledged that Brexit posed a “little bit” of a challenge to SBI’s plans for its subsidiary.
“We had hoped that when the subsidiary was up and running we could possibly use the passporting rights to have branches of the subsidiary in Europe which at this time I think may not happen…we may want more in Europe given that Europe happens to be one of India’s biggest trading partners so we will see what can be done.”
Asked about concerns about the impact of the introduction of GST and demonetisation on India’s growth, she said “You need some short term pain for long term gains. You cannot do a major restructure without expecting it to hit the growth rate somewhere or another. If as a result of it you back off from making structural reforms it doesn’t speak well of anybody…these growth rates for two or three quarters will soon be forgotten.”
She said SBI had gained in two areas from demonetisation: the huge increase in resources that enabled banks to bring down the lending rate by almost 100 basis points, and the jump in digitisation that had resulted in about three years work happening in about 60 days. “The only negative was…we had to keep aside our regular activities and just do money exchange during that period of time: home loans, car loans were put aside. We just didn’t have the resources to do both so that was definitely an issue. The other issue we had these humungous lines and people had to take a lot of trouble to get their notes changed. We tried to make it as painless as possible…but still there is obviously a lot of discomfort that people had to go through.”
