The boards of state-owned banks need to have more of professionals with domain expertise, feels Arundhati Bhattacharya, chairperson of State Bank of India. Last week, she won the CNBC-TV18 India Business Leader Award in the outstanding woman business leader category.
In an interview with CNBC-TV18, she said boards of PSU banks had a surfeit of chartered accounts. In addition to them, there also needed to be people with hands on experience in areas like HR, risk management and IT.
Bhattacharya said there was a need to professionalise the entire process of choosing the top management at state-owned banks.
She said the Debt Recovery Tribunal needed to speed up the process of resolving asset issues, and if they were being limited by traditional challenges, those had to be addressed through appropriate laws.
She said unless India had proper bankruptcy laws, it was difficult to have a speedy resolution in a manner fair to all stakeholders.
On willful defaulters, she said the laws had to be stricter than merely making it difficult for errant borrowers to get fresh loans. She said there has to be “an element of fear” as well to enforce discipline.
She said consolidation in the PSU banking space was imminent, but it was a question of timing.
She sees deposit rates coming down further with inflation cooling, and by extension lending rates as well.
Below is the transcript of Arundhati Bhattacharya’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: You have been a remarkable leader for your sector as a whole so why get the gender bias in. As a representative of the public sector undertaking (PSU) bankers itself can you begin by telling us what are the ingredients that make for success in PSU banking?
A: I in fact really had wanted to accept it on behalf of the public sector, and especially the public sector bankers so it is nice of you to give me a question to do that. Frankly, what is it that goes into these ingredients of success; the main thing is that you have to be as professional as possible in pursuing whatever are the goals that you set for yourself. Over and above that in India banking is not only numbers in the sense that there are so many other influences that comes in.
Especially because the economy at times is extremely stressed so there are situation that you have to understand, there are policy matters that you need to look into and this may have nothing to do with the banking per se. However, it may have to do with the various sectors that you are dealing with. So, basically one needs to be aware of what is happening in each sector and then you have to try and ensure that your books reflects those areas which seem to look better rather than do things across the board which is how it was getting done earlier.
Sonia: The Gyan Sangam pondered on ways to improve the PSU banking sector? According to you what are the immediate changes that we can expect? What are the low hanging fruits as they call it?
A: We need to start at the top and when we are talking about the top we are talking about the quality of boards. In public sector banks, we have in the boards a surfeit of Chartered Accountants. I am not down playing their contribution, many of them have contributed handsomely but now we also need domain expertise in various other areas.
Areas such as risk, areas such as HR, areas such as IT and management so we need people who are domain experts in all of these areas. We need people who are planners as well as executors that mean they have had hands-on experience in execution of various matters. If such people come onto the boards then the guidance that they can give to the management is actually invaluable. So, we should start first with improving the quality of the boards that is number one.
Second thing again is professionalising the entire process of choosing the top management. Again as I said there is a lot of work that has been done there earlier even. In fact say for instance in our all of our selections the Reserve Bank including the Reserve Bank Governor has always been involved. However, these processes with the passage of time they can always do with revisions they can do with more and more professional inputs. So, professionalising all of this, this process of selection that also is should be something that should help. These are all very low hanging fruits and these can be immediately implemented. I would think that the government would be very serious about implementing these measures.
Latha: Is that the sense you got, that the quality of the board members and the selection process for CEOs is changing right away, that is the first change?
A: Yes, I think so; you will see these changes happening very shortly. Regarding the process of selection that has already undergone a change. Regarding the process of nominating Directors on the board I am sure government is looking at getting the right people there. So these things will under go a change very quickly. However, there were several other things that we ask for as well as you very well know including things like recruitment, things like changes to enable us to resolve assets faster. Those will take a little bit of time but I am sure that the government will work on it.
Sonia: In the case of resolving assets faster what did you ask and what do you think you could get?
A: What we really asked for is that the Debts Recovery Tribunal (DRT) the concept that it was bought in on was a good one but over a period of time we have found that the speed of resolution has really slowed down. So, we need the DRTs to be able to resolve these assets much faster and if there are judicial challenges we need some way of limiting those challenges.
Whereas we are in a country which has a rule of law, which the Finance Minister talked about yesterday as well and we all respect that. However all the same there has to be a way in which this can be done faster. We also need proper bankruptcy laws, without those bankruptcy laws it is very difficult for these resolutions to happen in a manner that is fair to everybody.
We also need in respect of the wilful defaulters a little more teeth in the sense that there has to be something more than just making it difficult for them to get loans. When you want to bring about discipline, there as to be a small element of fear as well because without that discipline becomes a matter of choice not something that people will do. So, that is another area where we need to look at it but a s you are aware laws take a lot of time and therefore this probably will take longer.
Latha: The government has already split the CMD post into MD and Non Executive Chairman for some banks. Isn’t there a possibility that a powerful board which does not have any accountability can actually be negative and the MD and CEO only gets weaker? Can this whole thing play negatively?
A: It is possible as you know in the private sector this is already there. It will depend very much on the quality of the Chairman we get. The chairman whoever is selected must be a person with a background of know ability to execute and should really be a person of high repute. Only this will ensure that entire thing does not become further down graded.
Sonia: What is the logical end game of the reform process? You think banks will be brought under the Companies Act eventually?
A: It is the logical conclusion but whether they will get there anytime very soon I don’t really know. However, the Prime Minister did mention that your Finance Minister is from the legal profession so he should know best how to get it there. So, they are thinking very seriously about it. What is their timeline for doing it I am not too sure and nothing was mentioned but definitely all of these things that we have talked about they will get worked upon.
Latha: What is preventing you from cutting rates? Anyway consumer price index (CPI) is at 5%, why are you not taking rates to say 8%?
A: Our deposits are at 8.50 percent as you know we cut our deposit rates before everybody else did in October but rest of the pack did not follow. However, when the rest brought it to 8.75 percent we promptly brought it to 8.50 percent. The rest of them need to follow suit. As soon as they do that you will see us reducing rates further. However, as I said I cannot be way out in the open so I need the rest of them also to be convinced that yes deposit rates have to come down.
Latha: As a PSU banker when do you see a steep cut in deposit rates? If inflation is around 5 to 6 percent for a better part of 2015 do you see a 100 basis point fall in deposit rate for instances in six months?
A: I think it will; there is no doubt about it because again we are obviously getting pressure from the other side as well. If we have got to reduce the base rates then we have to look at cutting on the deposit side. There are no two ways about this it is a very simple equation and people have to do that.
They have already started, as I said they started about two months after we did but they have taken that first step now we have to see them taking a few more steps and definitely at 8 percent is a very reasonable rate at this point of time. Your wholesale price index (WPI) is zero and CPI is definitely trending downwards so even if we take 6 percent as you said it is definitely something that we need to bring further down.
Sonia: Finally your thoughts on consolidation what is the ministry thinking currently? In terms of a timeline when do you think it could happen?
A: Consolidation is something that will happen. When is really the question? Even the Prime Minister in his address to us he mentioned that the fact that there are four Chinese Banks in the top twenty in the world. Those Chinese banks have grown on the back of the Chinese economy. However, as he sees the Indian economy going up he also expect that some of us will be in those top twenty.
If we are going to be in the top twenty you are looking at mergers they is no other way growing organically at that speed would be very difficult. So, inorganic should be the way that we should proceed. Having said that why is it not happening at this point of time. If you look at some of the banks those that are weak and some of the banks those that are strong, the strong are not really particularly enamored about taking over the weak banks. For that matter neither are the weak ones because they feel that they will be overwhelmed.
So actually speaking when there is a union or a marriage it should be between strong and strong not between strong and weak. Therefore the idea that was mooted was that give us the time to get out of this very stressed economic cycle, let us put everything in order, let us see how best we can find out niche strengths and see how best we can position ourselves. So, that when this happens it is more of a union between likes than between a like and not one similar.
That was a view point behind whatever were the deliberations but it was clearly understood that you have to be able to make a difference; you have to differentiate your offering in whichever way you can and whatever you are offering you have to be a strong bank. This was very clearly talked about and clearly conveyed and all the bankers have taken note of that.