Also, corporates by and large are deleveraged and they are cautious in terms of borrowing. SBI does not see any unjustified borrowings. Need-based borrowing is happening and also prudence in terms of using their cash flows, and cash accruals before they go out and borrow. The balance sheets of the corporates are good and eventually, a lot of capex plans are being put in place which means that the credit growth will happen.
Before I talk about the State Bank of India, let’s talk about your inspiring journey. You made the impossible look easy. You joined SBI in 1988. How has the journey been for you?
CS Setty: It has been a phenomenal journey. Every time we talk about an individual’s journey in SBI, it is an institutional journey also. I never get tired of saying that the growth of an individual where we all start as a raw hand and how we get shaped and how we shape the institution in the process is an amazing one. This is one institution among many in India, a preeminent institution that provides an excellent level playing field to everyone.
I always say that in SBI we never ask which school, which college, which course, which degree, only your work speaks. Also, ample opportunities are given to everyone. The journey has been phenomenal. I did my BSc agriculture.
BSc agriculture?
CS Setty: BSc agriculture, but I worked for almost 25 years in corporate banking, and international banking. So, SBI provides equal opportunity to everyone and is an amazing institution.
I distinctly remember that your predecessor said, look, the elephant is getting ready for the salsa. But do you think the elephant is now getting ready for the high jump?
CS Setty: We say working in SBI is like being a trapeze artist. Probably SBI has attained the agility now to be a trapeze artist beyond being a high jumper, I suppose.
You are going to be steering the ship at at time when some would say a lot of challenges are over and growth is back on track. The future is full of promises, but it is full of uncertainty too. In the medium term, what is the growth opportunity for SBI and what is the biggest challenge for SBI?
CS Setty: As you rightly said, the economy is on a strong footing, and so is the bank. The bank is much stronger now. The balance sheet is strengthened. And we have invested significantly in the technology and digital space. The next step would be how to leverage the enablers that we have created. We have created enablers not only in technology and digital space, but we have also created enablers in terms of manpower skilling, process improvements, and underwriting skills have been strengthened across the segments. While we always have been known to be a corporate banking entity, today we have very strong retail underwriting skills and we have strengthened our agriculture and MSME. I feel the next growth phase is also going to be MSME and agriculture. In the last two years, credit growth has been secular in our book. It has not come from only retail personnel. It has come from retail personnel, MSME, agriculture, and corporate. So, the enablers that we have put in place in the last three to four years, there is an opportunity to leverage them and I see growth potential. We are a proxy to the Indian economy and I am sure I made a statement somewhere to my employees that if this is India’s decade, it also has to be an SBI’s decade.SBI has been maintaining credit growth which is higher than India’s nominal GDP. It is always 1.5% to 2% more than India’s nominal GDP. Assuming that the nominal GDP is going to be anywhere between 10% to 11% or 11% to 12%, can I assume that the 13% to 15% credit growth for multi-years is here to stay, not just this year but a couple of years?
CS Setty: Yes, it looks like that. While you are right that much of the credit growth is intertwined with the GDP growth rate, I see that our guidance in terms of 14% to 15% credit growth looks like that here to stay for at least a couple of years.
Ashwani Bhatia, ex-SBI but currently of SEBI made a very powerful comment and he said the mutual fund industry could be bigger than the banking industry, which means a lot of money from savings may move towards the stock market. Do you see this structural change impacting a bank like SBI also?
CS Setty: The structural changes are inevitable as the economy changes. The savers are becoming investors. Nothing wrong there. And everybody will be looking at different asset classes as investor awareness grows. However, bank deposits offer two unique services that other investment products cannot offer. One is of course the operational convenience of having a bank account and the second is liquidity. I am not talking about safety because I think banks inherently offer the safety element. So, the convenience and the service quality are going to determine in terms of your ability to continue to attract the depositors.
Our focus always has been on how to improve customer acquisitions. Today, we keep saying that we are adding about 50,000 to 60,000 savings accounts a day.
50,000 to 60,000 savings account a day? I thought India was fully penetrated in banking.
CS Setty: No, a new population is joining. Out of this, of course, 50% comes from the financial inclusion accounts. The rest of them are the regular accounts. Like people have multiple SIPs, they also have multiple bank accounts. Attracting valuable bank accounts to us and the salary accounts, the preferred bankers for the salary customers and self-employed customers while we serve the financial inclusion customers, is our motto.
ROA, the most magical number for SBI is now above 1%. NIMs are perhaps the best in the industry. Corporate profitability is growing in double digits. Can I say that if not this year, certainly next year SBI is on course to be the first company or the bank in India to cross Rs 1 lakh crore?
CS Setty: Without sounding like I am giving forward guidance, I can say that this institution has the potential to reach that.
Am I thinking right that you are headed there?
CS Setty: We are heading there and obviously the aspiration is to be there and aspiration to be the first company to be there and I strongly believe that this bank has the potential to reach there.
If you have to reach this mark of one lakh crore, you need the economy and the credit cycle on your side and not the NPA cycle. So, the economy and credit cycle have to be with you and the NPA cycle has to be away from you. Can I say for three years, you do not see the NPA cycle coming in corporate and in unsecured loans as well?
CS Setty: Corporates by and large are deleveraged and they are also cautious in terms of borrowing. We do not see the kind of borrowings which are not justified. Need-based borrowing is happening and also prudence in terms of using their cash flows, and cash accruals before they go out and borrow. So, the balance sheets of the corporates are good and eventually, we see that a lot of capex plans are being put in place which means that the credit growth will happen.
Unsecured loans have moderated slightly now, but we all keep saying that there are unsecured loans and there are unsecured loans of SBI. So that part is still there and I think there is a huge potential for qualitative unsecured lending in our books. But you are right, there needs to be at least three to four years of benign asset cycle for the economy to continue to grow like that and we are assuming that whatever the systemic efforts done in terms of credit underwriting standards being improved and credit quality selection happening, the cycle probably will be a little away.
You were part of lots of processes that were done at SBI when the new credit measures were announced and a lot of changes have happened. What are these changes because banking is a cyclical business? It may be two years, it may be three years, it may be five years but the cycle will hit you. But this time you are sounding confident that you would be able to manage the downturn in the cycle in a very smart manner rather than a scary manner. What has changed?
CS Setty: There are two major things about the corporate underwriting processes, not that they were weaker, but we have strengthened further. In the last five years…, underwriting is not about simple preparation of a loan proposal. To give an example, a simple example for instance, if there is a road project which is being funded by a bank now, we always assume that the right of way which is laying the road, would be made available as the project progresses.
Today, we do not release even one rupee unless 90% of the right of way is in place. This is the qualitative shift in underwriting as far as the corporate book is concerned and also in corporate lending. We are seeing that the quality of equity that promoters are bringing is ensured and a lot of times we also see that promoters are willing to bring their equity upfront now which gives us confidence that our overall ecosystem of corporate underwriting has improved.
As far as MSME is concerned, another major segment that is coming up, there are a lot of data points. Today, we have rolled out what is called the business rule engine. Up to Rs 5 crore, the loan is approved in 15 minutes instead of 15 days because we are able to triangulate our own internal data, customer, bureau data, GSTN data and the business rule engine is developed in a manner that the customer has to give only PAN number. If he gives PAN and a consent to obtain the data, we can tell him in 15 minutes if he is eligible.
If he is willing to take the CGTMSE kind of guarantee, the disbursement can happen in two days. So, rich data available in the ecosystem gives us comfort that we are doing it right now.
SBI in a sense has changed the rules of the housing market or the home loan market, coming out with very aggressive rates. Would you like to maintain that aggression going forward also in the entire home loan market or the housing loan market?
CS Setty: I do not call our rates aggressive. They are customer-friendly rates.
They are friendly for me, but the competition call it aggressive.
CS Setty: They are customer-friendly rates and I think we built one of the largest home loan portfolios today and SBI home loan has become synonymous with home loan. It is a kind of generic term for us.
You started low but you do not have the highest market share.
CS Setty: We have a huge market share and we today have the largest number of processing sales across the country for home loans we are promising to our customers that if a project is approved, we will give the loan approval from end to end in five days. So, it is not only about the softer interest rates that compel the customers to come to us but also our process, our extreme due diligence on the builder the paperwork, and other things. People believe that our due diligence quality is much higher and the service delivery has also tremendously improved and we took the processing centres right across the smaller towns also. A combination of all these things is helping us to be market leaders there.
I am going to take the clock really back here. Mr Rajnish Kumar was able to repair the balance sheet of SBI given the macro headwinds. Mr Khara was able to get the car back on the road. Will CS Setty now take the car to fifth gear and what is the big change you would like to implement as the chairman of SBI?
CS Setty: No, no. In one of the internal meetings, I said that the phenomenal work done by my predecessors and the achievements they have recorded are not to be seen as mountains in front of me but as a clear highway that has been laid out. I think we have the potential to go on the fifth gear.
Which way would you tilt? Would you be tilting towards more digital? For example, Yono was born 10 years ago and today it is a brand, that has reach, it has size, and market share. Or would you be going more towards micro-lending, SME focus?
CS Setty: SBI has never pursued these things in a mutually exclusive manner. They all co-exist. As the top management, as the chairman of the bank, we have multiple opportunities to drive and so digital, financial inclusion, SME, and agriculture. All the swimlanes are available for us to grow. I do not think one is at the cost of the other one. But definitely, the underlying theme for all this business segment would be digital. We want to digitise the process as much as possible both in terms of bringing operational efficiency for cost reduction and providing efficient customer service.
What would be your plan on listing some of the subsidiaries? You may not need capital but looking at the vibrancy in the stock market, maybe shareholders would be happy that more value unlocking is happening.
CS Setty: I have been there on the board of SBI for the last four-and-a-half years. This is a recurring question we face. But there is nothing on the cards at this moment.
What is stopping you from taking SBI Mutual Fund public?
CS Setty: Anything that we need to do in terms of accessing the capital market should be need- based, whether that company needs the capital. It is not about my divestment of equity or encashing the value.
How about buying stake back from Amundi?
CS Setty: All those options probably will be examined.
We are hearing this from RBI and we are now getting an endorsement of that from India’s biggest banker which is SBI chairman. Evidence somehow Mr Setty is not endorsing the thought what RBI and what you have shared with us because the private sector capex is yet to pick up at least if I look at capacity utilisation. If it is picking up, where it is picking up and how soon do you think it is picking up in full bloom?
CS Setty: Right in the beginning, we discussed corporate credit. We tend to evaluate private capex in terms of the corporate credit happening in the banking book. It is not required. I just said many of these large corporations had cash balances. They have to consume that, even if they have a higher capacity utilisation, obviously brownfield expansion they are not required to borrow, they are consuming their cash. But eventually, as consumption increases, the capacity utilisation, we see that capacity utilisation is going up by way of our working capital utilisation going up. I think that is the first indication of that.
You see that happening?
CS Setty: It is happening. And the term loans commitments are there, the sanctions, I mean approvals are there, withdrawals are not happening because they are consuming their equity and their cash approvals first. So, I am very positive that I think private capex will pick up further.
SBI of late has started lending into new areas especially in solar and renewable. Which are the new areas where you would be increasing your lending per se in terms of a commitment?
CS Setty: Solar is one area. It is also because a significant capacity is being added there in the renewable space. But we also see that highly sunrise sectors like battery storage or even hydrogen are going to be a significant capital expenditure coming in there.
To create a capacity, to assess those activities to be financed, we are planning to have a centre of excellence in our project finance department. We have one of the largest project finance divisions in the country today. So, in that project finance division, we would like to set up a centre of excellence where a unique skill set will be created where you assess a project in these emerging areas. So, I think there would be some outlay there in terms of the corporate credit.