Ashwini Kumar Tewari, MD, SBI, says rural growth is coming back, consumption is improving and of course, whether it has reached the levels that we want and whether it is sustainable is something we have to see. But with the agricultural growth doing good and the monsoon having improved significantly, we are in for a better rural performance than what has been in the recent past.
What is your reading of the policy commentary this time? One section of the market was expecting some change or at least flagging the change in stance given what is happening beyond the rates as well and then we talk about other important parts of the speech.
Ashwini Kumar Tewari: Our house view was that there will be no change of stance or no rate cut now because the food inflation continues to be high and therefore the stickiness of that in the overall scheme of things and the uncertainty globally as well in the agriculture side in India are the drivers and so there will be no change in stance. Our view has been borne out.The Governor went on to say that the banking sector is facing liquidity issues to the extent that if not addressed by innovative instruments, it could become a structural issue, even the top-up loans in home loans or gold loans. What are your thoughts on that commentary?
Ashwini Kumar Tewari: As the governor clearly said it is the role of the RBI to point out any build-up of risk in any part of the financial system. Therefore, earlier when the NBFC growth and the personal loans were growing very fast, they flagged it a couple of times and then they came out with some measures. That has resulted in the moderation of those segments. But within those segments, again, this top-up which he flagged, shows they are seeing a system-wide strong growth and that is why the concern is that it is being used for speculative purposes, as he explained, and whether all the norms of end-use, etc, are being implemented. It is the role of the regulator to point out these risks. Banks should take care and follow the norms so that there is no build-up of any fast growth in speculative areas.
So that was one part. The other part, of course, is that he acknowledged that there is a challenge with deposits. In the last eight to nine quarters, we have seen loan growth outpacing deposit growth, not only percentage-wise, but in some cases even in absolute terms. So, there is a challenge. Banks have increased interest rates on deposits significantly, but yet the deposit growth is still lower and that also points out two things.
One, of course, he said that the alternate investment scenario where the people are investing in stock markets and also mutual funds overall is a good thing. But there again, the speculative build-up could be happening. So, he said that that is why the banks are facing this challenge. And short-term raising of bulk deposits or non-retail, as he called it, is not a sustainable and stable way to fund loan growth, and may lead to structural liquidity issues.
And I think that is right because ultimately the retail deposits are the most stable. And therefore, the banks need to focus on this. Innovative instruments, etc, of course, we work on that. We are continuously examining which segments of the retail side, the society, we are still not able to tap fully and I guess that these things are all forcing banks to look at those segments that perhaps may not have been appeared very attractive earlier, but now we should focus on them and see that they are the ones from whom we raise deposits, rather than trying to find the easier ways. So, this is a system issue, a structural issue, and everybody needs to work on this.
And that is exactly what I wanted to ask about. At your end at SBI, given that you are the country’s largest banker, what is it that you are doing to try and propel and resurrect deposit growth?
Ashwini Kumar Tewari: So, there are three to four things we are doing. First of all, we do not have as much of a challenge as other banks because our loan-to-deposit ratio is still below 70. Our excess SLR as per the last published number, is more than three lakh crores, so we have those cushions and buffers and therefore we do not face this much of a challenge as others do. Our wealth platform is something we are working on strongly. We have appointed a lot of relationship managers and we are working to strengthen the segment which we have been missing so far in a big way. That is something we are trying to fix.
Then, in agriculture, we have launched a series of very innovative products that go alongside the deposits of the farmers and the farmers’ collectives, etc, and those are helping us not only on the loan side but also on the deposit side because they keep their current account with us, etc. So, there are various ways in which we are trying to address this and this is a long term. I mean, it was not that we were doing this only in response to this situation. This is something we have been focusing on for some time.
Similarly, loan products like vendor finance and dealer finance, are linked with the current account and by offering good transaction banking services in those, we hope to get some current accounts, especially after the government’s balances have reduced significantly through the SNA (single nodal agency) and central nodal agency (CNA) system. We have been working on this for some time and as far as we are concerned, we are not facing that much of a challenge, but it is something we need to continue to focus on.
You have a hawk-eye on all industries. What is your view on whether or not the rural recovery is seeing green shoots and how far away are we from an across-the-board recovery in the rural end of the economy?
Ashwini Kumar Tewari: We have seen very strong agriculture growth in the last four quarters. The last number was around 17 plus percent. So, we are seeing good growth. It is just that some segments change. For example, our basic segments have been the self-help groups, which again are largely focused in the rural areas and high-value credit, Kisan Credit Card loans, etc.
We are seeing strong growth and added to this are the so-called high-frequency indicators. TVS Motors published their two-wheeler sale numbers two days back and they have seen very strong growth. So, rural recovery is coming back and the same thing has also been said by some of the FMCG companies for this quarter, that the growth prospects look good. My view is that rural growth is coming back, consumption is improving and of course, whether it has reached the levels that we want and whether it is sustainable is something we have to see. But with the agricultural growth doing good and the monsoon having improved significantly, we are in for a better rural performance than what has been in the recent past.
