“As far as this quarter is concerned, inflation, of course, we have seen that for two months there was inflation which was outside the tolerance level of Reserve Bank of India,” says Dinesh Kumar Khara, Chairman, SBI.
Should we pick it up from where we left last time, that SBI was getting ready for a new dance number, Tango Salsa?
This is our effort and endeavour the way the economy is prospering. We want to be very much part of this growing economy, prospering economy and we want to ensure that there should not be any lever which we should not use to support the growth of this economy.
You have been calling the credit cycle right. You have been saying that look the double-digit growth is real, the double-digit growth is here to stay. When we spoke to you last time, there was inflationary concern, there was volatility in the bond market and the base effect had kicked in but that is a conversation we had a quarter ago. How are things shaping up for this quarter?
As far as this quarter is concerned, inflation, of course, we have seen that for two months there was inflation which was outside the tolerance level of Reserve Bank of India.
But I would say that it was not a trend. It was more of a one-off, essentially attributed to the vegetable prices, etc, and I expect that the rains, if at all we look at it, thirty-six states and union territories, out of that about 25 states and union territories have received the normal rainfall.
So, this is eventually going to get reflected in the inflationary trend. And my expectation is that it should come back to within the RBI’s tolerance limits and that is something which should go well in terms of the interest rate trajectory.
My sense is that interest rate, we should have more or less a pause situation as far as the RBI policies are concerned.
So, to that extent, it is a very encouraging sign from the economic activity point of view and we have seen that as far as the banking system is concerned, the growth in the credit from the banking system, they are somewhere in the range of about 12% to 14% and last year, we had seen the situation where the deposit growth was trailing far behind.
But this year, we are seeing that the deposit growth have also picked up. Well, of course, the cost of deposit has also gone up and the CASA for system has also come down.
These are the situations normally seen in the inflationary conditions. Normally, people have got a tendency to shift their deposits from savings into the term deposit. But I think, overall, if at all, the interest rate situation remains stable. It will certainly help the investors and also the corporates to really plan out their investments. We have seen that as on March of 23, the capacity utilisation has moved up to 76%.
So, we have already started seeing the traction in terms of the corporates taking decision for fresh investments. Some of the sectors have actually hit the full capacity situation too.
Considering the fact that economy has infrastructure as one of the core sector, where the growth is happening, then batteries, EVs, renewables, these are the sectors which are actually new levers of growth.
We had not seen these sectors in the past. So, I think the conventional sectors plus the new sectors for growth actually paints excellent picture for the growth of this economy and that is something which gives us a confidence that though this year we are expected to have a growth of about 6.8, but going forward in the foreseeable future we should be growing more than 7%, that is what my assessment is based upon what I read from the various factors which influences the economy.
So, on a sub-7% base of GDP, you are talking about a 12% to 14% credit growth. If you are of the view that next year it will be 7 plus, which means can I safely assume that the credit growth trajectory for SBI is only going to be improving?
I expect that to happen because as of now our credit deposit ratio even at a global level is also somewhere around 72%. If we look at only the domestic, we are at 65%. We have enough buffer available with us to support the growth requirement of the economy and we are only ensuring that we pick up the assets which meets our risk appetite and that is something which our major focus is.
So, I think we have the required ability to support this kind of a growth and my normal expectation is that we should be growing somewhere in the range of 12% to 14%.
So 12 to 14% you have guided for, I am again being very careful with words here. When your assumption for GDP growth is sub 7, next year assumption according to you is going to be 7+. So, 12 to 14 should become 14 to 16 then. I am trying to get maybe a headline from you.
I am only trying to say that maybe if it is already 6.8, it will be around 12. But if it is at 7% plus, it will be at 14. So, the range remains the same.
SBI has historically beaten the market. So, then if I add that as a factor, then 14 should also be beaten.
Let us wait and watch.
We have seen a war of liabilities. Something where you always said, look, the smaller banks are suffering but for SBI because of the SLR and other tools we have, the impact would be minimum. Now that the war in liability according to you is settling down, what happens to SBI?
Well, as far as the liabilities are concerned, apart from the war, we also look at it from the point of view that liability is more of a franchise. So, we have got large customer base and we must ensure that their interest is protected. So, with that in mind, we have been tweaking the interest rates here and there in some of the buckets, more so in the fixed deposit.
And to ensure that we should be in a position to cater to such investor depositors’ base through offering inflation adjusted returns also.
So, I think having said that, we are having a very clear focus in terms of improving our CASA and improving the CAR component of the CASA.
Traditionally, we used to depend upon the government deposits but of late, you would have observed that the government is also moving towards the just-in-time funding of the accounts.
And that is one of the reasons why we have started actually for about six months plus now. We had recalibrated our strategy and we started looking at the trade commerce industry and the transaction solutions in a very big way and we have already started seeing the positive results of that. And that gives us hope that maybe the CAR component of the CASA will improve.
One big point for SBI has been the agri loans, still in double digit. This year, monsoon, good and bad, we can argue depending on the time structure you are looking at but there is stress in the agrarian economy. The rural economy is not picking up so your plan to bring the agrarian loans from double digit to single digit, what happens there?
Yes, our plan for bringing the NPA level in the agricultural loan to single digit, it still stays. And actually, we used to have NPAs as high as almost about 13% in agricultural loans, which have been already brought down to sub-10.
So, that is something which is nothing but our efforts on the ground to ensure that we stay connected with the borrowers. And it helps us in ensuring timely review, renewal and collections also.
We had come out with an operational support subsidiary about six months back and that is actually proving to be very useful in this direction. I would also mention that the stress which you are mentioning, it may not be a reality on ground because how it will really pan out, we will have to probably wait and watch another month or so to really figure out how the rural economy will look like.
But the way things stand today, I am a bit hopeful that we should be in a position to bring down our NPAs in the rural sector or maybe agricultural sector from the current levels of about 9.5 to 10 to somewhere around 7%.
That is our internal target. And hopefully, the way we are operating, we feel confident that we should be in a position to achieve this. Apart from that, we are also trying to change the complexion of our rural book. We were having low value KCC loans, which were actually comprising about 40% of our book.
We are now looking at agricultural investment credit. We have got encouraged by the Agricultural Infrastructure Fund, which is 1 trillion of fund announced by the government of India. And we are looking at such opportunities to support the rural economy.
We have already created 47 centralized processing centres to deal with high value agricultural investment credit. So, I am quite confident that we will have good opportunities of underwriting good credit risk in the rural economy too. And that eventually will show up in our overall quality of the rural book.
But looking at the big picture you have said that this is a multi-year credit cycle, we are two years already into a strong expansionary cycle. Can I say, as of now, if one has to take a view, you see this credit cycle for SBI and for the banking sector per se because whatever you ultimately will say sir, will is a representation of the sector. Do you think there is visibility for at least three to four years of double digit growth?
See, I tell you, when it comes to the retail, retail I feel has got a good potential to grow. And why I am saying that is because when it comes to the services sector that has done very well. And I get to have a visibility of an excellent service sector going forward also. The reason behind is, if you look around you will see that there is a new levers which have come in.
The data centre, the AI base, analytics and all this is supporting the global economies. So, I think these are the newer sectors which will create quality employment in the IT sector.
And with that quality employment, the aspirations on the part of the individuals will go up and we have seen that it actually fuels the demand.
With the demand getting fuelled, the demand for the white goods getting fuelled, all other sectors are connected to that. So, that gives me the confidence that yes we will be in a position to see these kind of things happening. The other very important area is, thanks to the infrastructure development, road sector, logistics are becoming very-very important sector for the economy. And there is a conscious effort to reduce the cost of logistics from about 12% to about 6% to 7%. So which also means that warehouses, data centres apart from what I mentioned in terms of the renewable economy, the solar panels, solar cells, now the demand for hydrogen, development for hydrogen so these are the newer sectors of the growth and development and that is something which gives me the confidence that as compared to past where we have been in a position to see the cycles of growth in five years’ term, these new sectors gives me the hope that maybe this is going to be much longer-longer term as far as the growth cycles are concerned for Indian economy. And the kind of focus which the Government of India and the state governments have in terms of development is quite remarkable.
How much of your current corporate book is coming from new businesses, businesses which three years ago perhaps were zero or minuscule?
These are the early days but yes, of course, we have started seeing, for instance the data centres, we have started seeing the proposals coming in. So, it is a very recent development but we are funded also.
On your book, these three-four businesses which you mentioned, when will they start moving the needle for you?
I think may be another year or so. We have already started, we have supported the renewable sector in terms of the solar panels and also we are supporting the rooftop solar and all such initiatives we are supporting and we are seeing good traction on demand across the economy. Maybe SMEs are also putting up rooftop solar. We are actually supporting solar pumps in the farm sector. So, I think the way we consume energy, the sources of the energy are going to change in a dramatic way in the days to come.
I am again going back to the big pictures that you have sketched for us. Your big picture assumes capacity utilisation uptick and uptick which will come from retail growth. But when new sectors, they will kick in and now they will move the needle for you in FY25, then for next two or three years, we are looking at rather explosive numbers from SBI. You may want to play it down, but you are putting the pieces together for me to interfere.
No, actually what I mentioned about retail and then I mentioned about the various new levers of growth in economy. In that context, the others which will actually start showing up would be the SME, the ecosystem because they will also grow. So as I mentioned that we are very mindful in terms of the quality. It is not merely the number, but the quality of the number which matters for us.
Fantastic. So no more NPA problems touch wood…
Right, we want to avoid any such NPA problem and that is the reason why we have strengthened our underwriting practices quite a lot.
Let us look at the recent move from Reserve Bank of India in terms of systematic withdrawal for the ICRR. Liquidity comes back into the system for SBI, it could be 20000 to 25000 crore. What happens when the money comes back?
Also this is a point of time when the busy season will also kick in. So that is a point of time when the credit growth is normally higher than the usual and we expect that the RBI decision could have been one of the factors which would have influenced the decision would be the busy season requirements also. So I think we should be in a position to deploy that effectively.
