State Bank of India (SBI) Chairman Dinesh Kumar Khara was in London to attend the day-long SBI-FICCI Economic Conclave. On March 10, 2022, Khara opened the London Stock Market to mark the centenary celebration of SBI’s presence in the UK, and the silver jubilee of its listing on the London Stock Exchange. On the sidelines of the conclave, which has ‘India-UK@2030’as its theme, the soft-spoken and genial Khara spoke on a range of issues, and began by reminding that SBI’s existence goes back to 1806. The conversation has been edited and excerpted for clarity:
How has been the State Bank of India’s journey in India and abroad?
We listed at the London Stock Exchange 25 years back. Our existence goes back to 1806 through a royal charter Bank of Calcutta which became Bank of Bengal; later Bank of Bengal, Bank of Madras and Bank of Bombay (the three Presidency banks) were amalgamated into Imperial Bank of India (in 1921) and then State Bank of India came into existence. We are very proud to be here (in the UK) for 100 years, and it is our biggest overseas operation. In terms of balance sheet, we have a $630 billion balance sheet almost equal to forex reserves of the country; we enjoy a market share of 23 percent in deposits and 20 percent plus in advances. We have kept pace with time, and we have ambitions; almost 77 percent of our transactions are done through digital board, 95 percent of our transactions happen outside the branch.
But digital cannot be the only way. The kind of demography and geography we serve, 'PhyDigital' becomes the only option, so we will have physical presence as well as digital presence. We are much beyond just a bank, we have a presence in life insurance, merchant banking, asset management. All of them are leaders in their league tables, so we are a diversified group offering complete financial services in the country.
We have over 200 offices overseas in 35 geographies. In the UK we came with a retail subsidiary in 2018, and that model is doing very well, this (UK) is the best performing overseas subsidiary and the way it has scaled up is a matter of pride for us. The UK was the first country where we introduced the YONO app. In a short time, the UK subsidiary is serving more than hundred thousand customers. We have a very old operation in the UK from 1921 which we call the London main branch which essentially looks at the corporate side.
How has the bad bank shaped up?
The bad bank is an attempt to relieve the capital and also the managerial bandwidth. So in the first phase, Rs 50,000 crore of assets is likely to be transferred to the bad bank. And as a construct, it is being created as NARCL which is more of an aggregator. In case of all such impaired assets, normally these are funded by consortiums, so decision making has to happen at each level which invariably takes little longer. In this case, aggregation becomes easier and once all banks decide to transfer assets to NARCL, the movement will happen fast and once it has been moved then another entity – IDRCL – will work towards the resolution of those assets. So aggregation is separate, resolution is separate. As far as aggregation is concerned, there is sovereign guarantee to the extent of 85 percent would be security receipts (SR), so to that extent it will enhance the marketability of these SRs.
NARCL’s majority ownership is with public sector banks. IDRCL, which will involve resolution, has got majority ownership of private sector banks. Perhaps post-IBC now there is an ecosystem which can help in resolution of these assets. So as growth opportunities unfold in the country such brownfield assets have a market, which is a win-win situation for lenders as well as investors who want to come in and reap benefits of these assets and also eventually for the nation as a whole. We are a capital-deficient economy and we cannot afford to waste capital like this. So capital will be put to a good use, and I feel it is a great initiative.
But it has not moved much since the announcement?
Now it has moved. It invariably happens, if you look at history, within one year of announcement in the budget, the entity is up and running and aggregation of assets has been finalised, hopefully it happens before 31st of March. And the IBC (Insolvency and Bankruptcy Code) resolution took a lot of time. This is another option which has been made available for resolution of stressed assets.
Do you think more PSBs need to be privatised, given the limited headroom of the government?
With the consolidation which has taken place in the PSB space, I do not think there will be more such opportunities going forward. A decent consolidation has already happened, and the economy of our size would certainly need at least that much number of PSBs. The balance sheet of PSBs have grown so it gives them the ability to underwrite a larger ticket size to meet the aspirations of trade and commerce.
Several banks including SBI have been hit with glitches and outages in internet/mobile banking. What are your thoughts?
This is a subject which is engaging everybody’s mind and attention. For entities like us, we have to stay ahead of the curve. And with that in mind, all possible steps are being taken to ensure that there is enough security, firewalls. Apart from that, it is very essential that we educate our customers. Because very often customers become targets of such acts. So it is two-pronged: one, we have to do what we are doing, and also need to educate customers to ensure they do not become victims. We have to do whatever is required to ensure security for such transactions.
SBI has dipped into the private sector to make key appointments, most recently for digital. Is it something that will be seen more often?
We normally make an assessment, and if we feel that talent required for meeting our aspirations is short, we are quite open to explore such opportunities. This initiative is more in that direction.
How do you assess the impact of COVID on the balance sheets?
There are concerns that it is going to impact the balance sheets of banks very badly. On the contrary, if we look at the performance all the banks have improved their provision coverage ratio, all the banks have shown higher profit during this period, so it is a riddle how this has happened, as a departure from the normal perception.
Emergency Credit Line Guarantee Scheme (ECLGS) was the first loss guarantee scheme from GoI (the government of India). And then the resolution framework was introduced by the Reserve Bank of India and the natural question was, would it not affect the quality of advances? When the first scheme was introduced, we as lenders reached out to all so that people can avail the scheme. To our surprise the participation was low. Why?
Because there is a definite change in behaviour; we see more responsible behaviour. And why is it so? Compared to the past when we did not have bankruptcy law in the country, losing control of an enterprise was a fiction. But when IBC was introduced, the fiction became a reality and it is one reason why this kind of responsible behaviour has been seen. Apart from that in the retail sector, the bureaus have become very strong and the banking system has got access to information relating to credit behaviour, and that is one reason that retail loans are doing better as compared to general expectation. The country is moving to a different path.
And of course banks have also learnt their lessons from 2014-15 onwards, and they have significantly strengthened their underwriting practices. At times it is said that it is credit aversion, but it is not so. I will share with you that for a bank like, SBI we have an under-utilised limit to the extent of almost 50 percent - working capital limits, because capacity utilisation even today is not 68 percent, so this lower capital utilisation is attributed to supply chain disruption which has happened. The second aspect which I must highlight is that the people who availed these facilities from the banking system were the ones who had experienced disruption in the cash flow so disruption happened suddenly, but with the revival of the economy that disruption could be repaired also. We have seen situations where some of the people who availed these facilities (ECLGS) have started repaying loans even before they were due.
How prepared is/was SBI to negotiate the global pandemic?
We still have provision of almost $800 million in our balance sheet which was essentially to mitigate the risk which might emanate from Covid. So when I look at my total book which is restructured today it would be about $5-6 billion. On that $5-6 billion, I have $800 million provision which I am not required to provide for, but I still provided for it expecting there will be higher delinquencies which might not be the case. I may not be required to use that. As a bank we have very clearly articulated that we will keep our balance sheet insulated from all potential risks. And that is the reason why when it comes to corporate books, our provision coverage is as high as 78 percent. So that is something we are ensuring so that there should not be any shocks for us.
What does the SBI offer to the Indian diaspora?
It is essentially the convenience factor which made us launch YONO UK. All such citizens who move to the UK, we made it easier for them to have an account in place even before they land in the UK. So it has facilitated their money transactions and also given them confidence that they will have an account from a most trusted brand in India. So it addresses their anxiety. We are also in the buy-to-let which is a very popular product in the UK. Also in terms of remittances. We are generally in a position to take care of all their financial needs and give them adequate opportunities.
We perceive that when we become a corporate citizen of another country, it won't be fair for us to serve only the ethnic community. So that is the reason we have started looking at local syndications. We are happy to support any trade-related relationship of citizens of any country. Of course we are very well-received as far as NRIs and ethnic communities are concerned, but we will not restrict ourselves to only serving them.
What is your advice to those seeking to invest in India?
Because of the fundamentals of the economy and certainty of growth, it is an opportunity to buy, because whatever the stock market was earlier, it has come to a level for all right kind of stocks. Right entities with right corporate governance have got huge potential for growth.
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