Do you think the credit cycle of mid-teens or between 15% to 17% could last despite a high base effect for next three years at least?
Dinesh Kumar Khara: Well, of course, I think the way things are emerging, I always say that the growth is a function of how the GDP or the macro will look like and our expectation is that the macro growth should be somewhere in the range of 7.5 to about 8. And if at all that is the kind of a situation, I think around 14-15% kind of a growth should be a reality.
And you can grow without the stress of NPAs because the hallmark for SBI in last two years has been strong growth, low NPAs, no capital raise. Will this template continue?
Dinesh Kumar Khara: Well, of course, that is attributed to partly to the ecosystem which has taken roots in the economy, partly also to the responsible borrowing and part of it is the effective control mechanism thanks to the structured and unstructured data which is available, which helps us in identifying the red flags in good time and initiate the recovery actions in good time. So, I would say that it is overall the culmination of multiple factors which has led to this kind of a situation and I do not see any kind of a let-up on these very important contributors for ensuring the quality of the loan book. I like to draw your attention to the liability franchise and there seems to be war of liability. While State Bank of India so far has managed to protect its liability franchise given that money is now generally moving into stock markets, not into fixed deposits, could that be a challenge for even SBI going forward?
Dinesh Kumar Khara: Well, I think each of the segment of economy has got its own ability to absorb the money. So, when you talk about the capital markets, see the point is that whether the money which is going to the capital market, is it contributing to the froth or is it contributing to the capital formation? Froth can be created up to a level, not beyond that. So, I would say that when it comes to the money which remains with the banking system or is lent, if at all it is lent for SME, for agriculture or for corporate, generally it goes for the capital formation. So, I think if at all we have to sustain the growth of the economy, the capital formation perhaps cannot be ignored. Now, the other question which you have in mind is essentially relating to the liquidity and the related challenges. I would say that there are two or three major drivers as far as the liquidity are concerned. One among them is government is one of the major contributor in terms of the liquidity, the kind of spending which they do.
We have seen that there was a point of time when the spending was hardly any and which, of course, have shown up in terms of the fiscal numbers also. And also now the government finances, they are believing just in time kind of a funding, so it does not leave much of a float in the system.
Thus, the second source of liquidity could be RBI. Here also the focus is more in terms of managing inflation and ensuring that there is adequate liquidity in the system. Not excess, not short, adequate liquidity in the system. So, I think these are the facts which we will have to acknowledge and I rather perceive it in the sense that when the economy moves from developing to the developed state, there cannot be an excess liquidity situation either, whether the government contributes or the central bank contributes, there cannot be excess liquidity situation. So, I think given that, it is a reality. So, perhaps allocation of the liquidity between stock market, financial markets and the banking system will take its course. So, that is how I look at it. But yes, of course, ability to source deposits across the geography by offering multiple products will perhaps be the differentiator.
I must compliment you for what you have done in terms of changing the entire culture at SBI and especially in terms of one particular financial number which seems to be standing out is your ROA. I mean who would have thought that State Bank of India would be anywhere close to 1%? It is now north of 1%. So, on the ROA front, do you think large part of the heavy lifting is done? Can ROAs continue to move higher or they will stabilise now?
Dinesh Kumar Khara: My effort is to continue to improve it.
Do you think you can go close to 2%?
Dinesh Kumar Khara: At least in the near future, my target is to take it to 1.10 and, of course, last quarter we were actually at 1.26 but for the year as a whole we were at 1.04. So, aim and ambition is to take it to 1.10 at least for a year and, of course, we will keep on improving the numbers as we reach there.
If you have to maintain this kind of growth, you have not raised enough tier one capital or capital from the equity market. At what point in next 12 to 18 months or after that would you be coming to the market to raise pure equity capital?
Dinesh Kumar Khara: Incidentally, I have not raised the capital but in last three years’ time we have ploughed back 1.10 trillion Indian rupees and that is something which has led to the situation where our CET1 is perhaps the highest in one decade.
So, actually speaking, our ROE is much higher than our loan book growth, so that gives us the organic way of generating capital, so that is one of the reasons why we have not done it. But yes, of course, we are very mindful and we believe that we have got a loan book of about 37 trillion and at this kind of a capital we can easily support about 7 trillion worth of addition to the loan book which actually turns out to be about 20% growth. So, we are expecting about 15% growth, but very closely we are evaluating the situation on ground and as and when required we can reach out the capital. Raising capital is not a challenge.
Do you look at your stock price? Do you check where the stock price of SBI is?
Dinesh Kumar Khara: I do look at it. At the end of the day, I am supposed to get the numbers where it was, how did it move, that is something which I do.
And when it hit a new high, how did you react?
Dinesh Kumar Khara: Yes, it gives me a lot of satisfaction because I in turn have created value for my stakeholders.
So, what to your mind is the fair value of SBI?
Dinesh Kumar Khara: Considering the kind of a network which we have, considering the kind of quality of book which it is and the way we are investing into technology, the way we are actually creating the muscles of the bank, I would say that it is still underrated.
As India’s biggest banker, what are the three things which you think will change in next four to five years for SBI and for the Indian banking sector?
Dinesh Kumar Khara: Well, I think some of the early signs we have already seen, the way the ecosystem has got evolved, that is something for the eventual good of the economy. I think we will continue to see an improvement over this which may look to be incremental but it will have substantial impact on the way we conduct our businesses, that is one very important thing which will be seen.
Technology adoption and also the hyper-personalisation is going to be a reality and we are already working on it and we will be in a position to showcase at least some shade of it in the days to come.
Similarly, when it comes to our ability to reach out to all the segments of the customer base, that is something we have that reach but we are sharpening our distribution capabilities. Of course, I would say that some of it is essentially to ensure that our levers function even more efficiently, that is the major focus which we have.
In addition to that, we are now embarking upon the new initiative which is green and internally we have adopted a resolution that as far as Scope 1 and 2 are concerned, we should have significant achievement of Scope 1 and 2 by the year 2030 and at least 7.5% of our total loan book should be green advances, that is what we are aiming for and I am sure that will actually project the bank and the economy in a very different light across the global scene.
If one looks at SBI subsidiaries, either you are number one or you are number two that is how all your subsidiaries are positioned, SBI Mutual Fund number one, SBI Card number one, SBI Life Insurance almost number one. Do you think this leadership in your subsidiaries of financial services, are you likely to maintain that and you think they can be significantly bigger than what they are?
Dinesh Kumar Khara: I believe the children should follow what the parent has done, so that is why my expectation from each of them is that they should have at least 23% market share in their respective area.
How much of the profit for SBI consolidated basis is coming from subsidiaries and in three years how do you see that changing?
Dinesh Kumar Khara: It is not much considering the fact that the way this economy is, a significant proportion is in the banking sector and though the profits if at all we will look at it in terms of ROA or ROE, they are doing exceptionally well. But when it comes to absolute number, it is not really much. So, of course, when we talk about our this year’s profit which was 61,077 crore for the yearly profit for the bank only, the subsidiaries contribution was about 5,000 crore, so it is not much but the more important part is that we are in a position to offer the product manufactured by our group companies to our customers. So, what matters most is the quality and quality of the product is something which will ensure that our relationship should be forever and I always believe transaction does not lead to relationship, relationships only generate transactions.
I like to draw everyone’s attention to your other subsidiaries which are non-listed. One is SBI Mutual Fund or SBI AMC. It is India’s biggest, it has got AUM which has reached almost ten lakh crore now. You wanted to take it public about two, two-and-a-half years ago but that plan was put on a back burner because of market conditions. But looking at the size, the reach of SIP and the profitability, is there an inclination which is coming back to take SBI AMC public?
Dinesh Kumar Khara: See, actually speaking, the reason for listing could be if at all the company needs capital. They have got a very strong net worth and why should I unnecessarily expose them to QSQT? They should better focus on the returns which they should generate for their investors.
What about Yono? If not three and five years, you think Yono will go public?
Dinesh Kumar Khara: See, Yono is a very important distribution channel for us. So, I think we probably cannot think of having a distribution channel being offered through a subsidiary. So, I do not think so it is a doable proposition.
Let us talk about categories and one of the categories which is of mass interest is the HFC category and we have seen not a brutal war, but we have seen a war within the public sector banks and the private sector banks when it comes to home loan growth and SBI has got very aggressive rates there. Where is that end of your portfolio moving? Is that war in the HFC space over?
Dinesh Kumar Khara: There is a war but I am not part of that, that is something which I can say. What we are ensuring is a timely delivery. We are ensuring that the customers should get the loan and also we offer the value add in terms of ensuring the clear visibility of the title. Because this is something which is at times it is very opaque and happy to share with you that we are almost at about 7.6 trillion loan book as far as mortgage loan is concerned and we do not have LAP, it is pure play mortgage and we are hoping that we will have a decent growth in this and we do not see any challenge when we look at our pipeline for the mortgage, there is no challenge across the country and we have added to our capacity in terms of the CPCs which we have created, it has rather helped us in improving the turnaround time. So, I do not see any challenge because if at all we offer a quality product at a reasonable price, there is ample demand.
I am going to keep SBI away from the equation but if you really have to give us a sense of what is happening in the industry, especially in categories of unsecured loan, in the categories of gold loan, do you think there is a bit of froth building up there?
Dinesh Kumar Khara: Well, yes, of course, see what happened when it comes to unsecured loan or for that matter the gold loans also. See, actually banking is a boring business. So, one has to keep on doing the similar kind of thing again and again and again and again.
So, very often some people try to resort to innovation and those innovations are perhaps shortcuts. Shortcut does not work in banking. So, ability to repay is absolutely essential, underlying security particularly when it comes to gold loan is absolutely essential.
If at all somebody tries to work out an innovation which will probably have the shortcuts for this, that leads to challenges and I think RBI could sense it in good time and they took the necessary remedial steps. At least indicated to the industry better take the remediations, otherwise there could be consequences which may not be in the interest of the financial sector.
I will also like to draw your attention to what essentially is happening in terms of your global businesses. Lot of banks in a sense have consciously reduced their exposure to global businesses. SBI has also done that, but you have a formidable presence. Given that global economy is in a topsy-turvy mode, emerging markets are in a deep recession, how do you see that end of the business moving for SBI?
Dinesh Kumar Khara: For us as of now it is 12% of our business, of our balance sheet comes from our international operations and we have an ambition of scaling it up only. Why? Because when India is becoming a global force to reckon, when India is becoming part of the global supply chain, it unfolds opportunities, that is one. And secondly, we are, as far as our global operations are concerned, at times we are opportunistic also. Depending upon the geographies, depending upon the line of businesses, we are in a position to improve our NIMs in the international operation.
And certainly, it helps us in terms of our domestic business also because when we are roping in the overseas investors, even that is something which we can do.
So, I think for us, we will continue to remain in the geographies where we are and we are selectively looking at the other geographies also where we can expand, where there are opportunities. So that is very clearly a focus area for us and in the medium term we will like to increase our international banking book from 12% to at least 15%.
As a banker, you are in a perfect position to perhaps tell the audience and the viewers that which are the two or three sectors you think they are on the cusp of strong growth. Last time, for example, I met you, you specifically said solar, renewable, manufacturing. So, as a banker for next three to five years, where do you think demand at the corporate end is strong and you are happy to lend looking at the dynamics of the sector?
Dinesh Kumar Khara: No, I think I still maintain that renewable, solar in particular will continue to be a very-very promising sunrise sectors and also infrastructure which will lead to decent demand for the cement and steel, that will remain a very-very important sector for the economy in the days to come. And, of course, now, with the kind of focus which is there on manufacturing and becoming part of the global supply chain, even white goods and engineering goods are also assuming significance.
Last year, SBI’s profit was higher than many of the IT and many of the FMCG companies put together. Iss saal kisko beat karne wale ho aap?
Dinesh Kumar Khara: I do not plan for anything, so I only plan for actions. Outcome is the result of the actions.
We coined a phrase in one of the interviews and I said, who says elephants cannot dance? You said why, SBI is now ready to get for a tango and a salsa. So, what should shareholders expect now that you think the SBI is ready to do a tango and a salsa?
Dinesh Kumar Khara: Yes, our muscles are strong enough, we can do anything.