Watch: Arundhati Bhattacharya in a candid interview to CNBC-TV18

Q: Let me get to the start of the story which is what I wanted to learn from you. When you joined, early 1970's?

A: 1977. I finished 40 years, one month and two days.

Q: In 1977 itself, did you enter with the idea that you are going to make it big, you are not going to settle for anything small or is it just that things evolved?

A: Things evolved. First and foremost, nobody in my entire family has ever been a banker. Why did I become a banker? At that point of time, there were very few jobs that you could get without knowing somebody and I knew nobody. On top of that, I was in a hostel, so my parents were in one of the steel cities. So a few of us in the hostel, we got together and we took a bet that we would crack this exam and that is how we did this exam. And in those days, there were no guides, no coaching classes.

Q: IAS was not a temptation?

A: IAS, actually there was a problem with IAS and I will tell you that also, the problem with IAS is you need to know one subject upto post graduate level and that subject cannot be a language. So because I was doing English, I had a handicap where IAS was concerned whereas this one had no such handicap. In those days, the salaries were comparable. In fact, I think we had Rs 100-200 higher than IAS. So in balance it worked out fine for me. Again, I did not have to study much for this. As I said, no coaching classes. All that we studied from was something called the competition master.

I think what stood me in very stead and which is why I scored very well in the exams was the fact that I used to tutor two young girls and both of them were total duds in maths. So, I used to give them half an hour of mental maths every day. And that sort of prepared me for the exams as well.

Q: Let me stick with confrontation problem which every leader has to face. Look at a person like RK Talwar. He is at least my icon though I have never seen him. He had lead the bank from strength to strength and yet, look at the way he had to exit for no fault of his. In fact, I remember my father saying that SBI Act had to be amended so that they could ease him out in an ex parte judgement and he used to call it the 'Talwar hatao amendment', if I remember right. How do you manage confrontations like that? Was a Talwar lesson in your mind when you handled these problems?

A: He is quite a legend in the bank so all of us know about him.

Q: You met him?

A: No, I have not met him. In fact I came in when Mr Nambiar was the Chairman and again one of the icons in the bank at that point of time. Managing confrontation, as I told you, the main thing is that you do not have to go head on head with somebody. You need to find the logic and be able to very clearly communicate the logic. That also, in a way, I have had a little advantage that I have been able to communicate well and that has given me a little bit, few brownie points, maybe, and has enabled me to coach things in a manner that sounds more reasonable than confrontationist.

Plus of course, there is fate as well. Mr Talwar probably got put into a situation at a particular point of time when things were very difficult. Had I had a similar kind of time, maybe things could have been difficult for me as well. As luck would have it, it did not happen. So I think it is a mixture of your destiny or fate or whatever you have, plus your efforts to ensure that we do things in a collaborative manner.

I have really and truly tried to propagate collaboration. So whether it be on the 18th floor of the bank or whether it be within the various silos of the bank, within the group and even with the industry. Today, if you see, there is much more talk within the industry as to how we take things forward.

Q: I think that is to your credit.

A: No, but I was told, somebody in Delhi told me that you all now have formed the gulabi gang because there was Chanda and Shikha and then Usha came in so, the fact of the matter is I think we get along much better, we talk much more, we try and specially, in respect of those accounts where people are playing one against the other, they will come and tell me, that bank has given me this facility, you are not giving me. So they cannot do that anymore. I simply pick up the phone in front of the person and ask, did you give this and why did you.

So to that extent, I think even collaboration within the industry, we have been able to increase. And that I think is something that people do recognise and people appreciate.

Q: Therefore, what next? You have kept that a secret.

A: Actually speaking, I do not know myself. I think what I will try to do is to do a portfolio of activities, maybe do some amount of speaking which, in areas where do more deep dives in them which I have not had a chance of doing. And of course, take up a few board positions. So I do not really want to get locked into a 10-5 unless it is something really exciting. I am not ruling that out either, but at this point of time, I am really looking at a bunch of things and gauge. To tell you the truth, it is impossible to do these things while you are in the bank. The hours are such you just do not have time to look around and find out what you are going to do. So I am trying to do that.

Q: When you speak of board positions, has it felt that you would have been so much better off, wealthier off if you had a private sector position?

A: At the end of the day, nobody was stopping me from leaving. Anybody who comes with a grouse of this nature to me, I tell them very clearly, you are here on your own volition. I stayed out of my own volition. Yes, once in a while you may have a regret, but then, that is my doing, it is nobody else's doing. I could have left whenever, if I really wanted to put that as a priority, I could have left at any point of time.

Q: That brings be to the meat of the conversation I want to have with you. What would be your golden bullet for public sector banks? I am not trying to say that there have been private sector banks also which have similar problems because of the turn in the economy, but still, public sector banks have a problem in the sense of the average NPL being much higher. What is your golden bullet suggestion?

A: It is very difficult to compress it all into one bullet. There has to be a number of initiatives and I think one reason why SBI has consistently done better is because first thing is SBI's board has always had some very good people. Again reason for that is we always had four people representing the minority shareholders. Now these four people were all chosen for their expertise, not only in respect of the theory piece but also in respect of their execution piece and these four people have always been given very good support to the various things that SBI has been able to do.

So, first and foremost it is a question of strengthening the board. Any good thing must emanate from the top. It does not go from bottom up. It has to be top down. So that, the government is already looking at, but that is something that really needs a lot of work on. For instance, while we have some very good people on our board in SBI, there are still vacancies. Four vacancies or six vacancies were there.

Q: So first set the board right, is your suggestion?

A: Set the board right, get the right people in and give them a variety of experience, experience from risk, experience from HR, experience in execution of projects, experience in IT. So there are various pieces which need to be there. So that is very important. The second thing I think that is really very important is the HR piece. Again, very few people like to tinker around with the HR in public sector, but that is a piece that really and truly needs to be looked at.

Q: Exactly, now today, we would rather write an IIM Ahmedabad exam or somewhere where even the intellectual challenge is higher and the material returns are higher.

A: I fully agree there and I do feel that this is one area that we have to find a solution to. As you know, there is a Supreme Court decision that tells us that we have to go to the public at large in order to recruit. I have no problem in doing that. The only problem that occurs is that the time taken is too long because for 1,800 probationers, I have to sieve through 18 lakh applications. 18 lakh applications cannot be done in a day so I have a preliminary exam, then I have a final exam, then I have an interview and then I take the people.

Now this is a process that takes nine months. Even if you crush it, even then maybe it will take six months. But in the meanwhile, the people in the campuses, what happens is they do not have to bother about all of this. People just walk in and get. However, even here I would say that we have to find ways of doing this. So, what we have tried to do is we have tried to market our career plans to people and last year, after the marketing that we did, we did get a much better quality of people.

So there are colleges still where you get good talent. These are the general colleges, not specifically the management colleges where you get very good talent who were not applying to us merely because their idea of a public sector was a fuddy duddy kind of idea.

Now public sector is much much superior to that and actually speaking if you get my career, I have done about 12 jobs. I have never had a day's boredom in my life. I have had challenges all along and I am not an exception. A lot of people have gone through the same thing. So there have been challenges in the job, there have bene challenges in the environment, I have been all across India, pan-India, north-south-east-west, I have been in the US and most people who come up well, they invariably get a posting abroad. So, there are a lot of challenges, plus, I have done very strange things like even setting up new businesses. Setting up new business is something you do not link with a public sector at all. So we have not done a very good job of marketing ourselves either and just recently, for instance, we came amongst the top-three places to work in alongside Google, we were the number three there. So it is something that people would definitely like to come.

Q: Maybe that will help a bit but even now public sector banks have obviously reined behind probably because of lack of capital. Is this capital argument right or is it that there is no demand for loans?

A: Immediately if some very good projects come they will not lack for finance. Finance is really not a problem but to what extent. Today the public sector banks are growing at say 4-6 percent. There will not be a problem till it goes up to say about 12 percent. Subsequent to that you do need capital. So, it is not right to say, I don’t need growth capital at all. If the economy is growing well I absolutely need growth capital.

Q: Today do you think it is a demand issue that loan growth is not there?

A: Today it is definitely a demand issue.

Q: Even if the public sector banks had 14 or 13 percent CAR?

A: Absolutely, but this may not be true for the smaller public sector banks or for all of the public sector banks but it is true for a large number of the banks. Even today if you have a project that needs Rs 20000 crore of financing, it will get done very quickly if the project is a good one.

Q: Let me come to the other issue which may challenge your successor, this MCLR and external benchmark, you think that is an issue?

A: One thing about the external benchmark we must remember is, that if you are using an external benchmark on the loan side you will have to use it for the deposit side as well. That is something you must remember. Also you must remember that unlike international banks, Indian banks, 97 percent of the resources are deposits. Plus India does not have a social security system. So, banks are de-facto the social security net. There are thousands of people who retire, who don’t have the risk appetite of going into the market and they depend upon bank interest in order to live.

Now if you are going to attach the deposits to the external benchmark then your bank interest is going to fall quite significantly. So, is India ready for that? I think that is a question we really and truly need to look at.

Q: The regulator is telling you this.

A: I understand, I am now talking not from the banks, not from the regulator, I am talking as an individual, I am also amongst those retired people and I can understand how the retired people are depending upon bank interest. I maybe very lucky and I may be able to still work, there will be a lot of people who will not be able to do that and they are dependent on bank interest.

Bank interest if you attach it to the external benchmark, we will be at least 200 basis points below the external benchmark. So, it comes to around 4.5 percent. Now can you imagine a deposit rate at 4.5 percent in a country that doesn’t have a social security as yet, where and how will it be workable.

Q: Now you speak as a public sector banker in a country where public sector is banking about 75 percent. It is possible that today it is more like 65 percent and a large part 35 percent and may be in a bit 40 percent will be served by private sector bankers. What is their problem to provide the social security net, it is not their headache

A: You have to understand that it may not be their problem but at the end of the day they are part of the system. So, even today they also do Jan Dhan accounts, they also do Mudra accounts, they may not be doing as many as us because they are not in those spaces and this is not their area of focus, whereas for us it becomes an area of focus. So, they may not be doing as many but at the end of the day they still have a deposit franchise. I am sure they don’t want to destroy their deposit franchise either.

One good thing that comes to the banks on account of this deposit franchise is that the biggest threat to the banking system is the liquidity risk. The liquidity risk emanates from the market borrowings. If there is a crisis your market freezes over and your borrowings go down. So, you have seen at the time of US crisis accounts that were giving you a return of say USD 5 million a year, that was the profit that was coming, was getting sold for USD 100000 because those lines had to be pulled. They had to be pulled not because the company had done anything wrong, the bank did not have money to lend because they had to get it from the market.

Public sector banks understand this. They want those deposits, it gives them that liquidity. It saves them from that liquidity risk, so why should they want to give it up?

Q: Therefore you think that this entire proposal will have to be re-discussed?

A: I believe so, I believe there needs to be a debate on this as to whether we are ready for it. I also believe that most of the solutions that come to India, you have to Indianize them. When I had gone to the US, one of my friends who was returning, he said when you are coming back from the US don’t bring anything.  So, I asked him why? He said nothing is tropicalized and everything gets fungus as soon as you bring it here. So, things like VCR and microwave which were not that easily available in India at that point of time, he had brought all of those and none of them were usable. So, it is the same thing with solution here. A solution that is okay in the west cannot be used in the east. Not only do you need to tropicalize it, you need to Indianize it because India is a separate entity, it has its own parameters, it has its own challenges. So, we need to look at these solutions but frame them in the Indian context.

Q: So, you would say same thing of the provisioning rule? The current rule is that it will be 50 percent once it goes to NCLT, 100 percent if it is 270 days, so you would want that also to be reviewed?

A: I believe that what we are trying to achieve is some kind of stability. For bringing in stability what is really required is a proper assessment as to how much provision is required. We are in country that does rule based provisioning because it is a very large country, it is very difficult to really rely on somebody doing an assessment, rely on it being objective. However as a result what we are doing is we are really putting a lot more on ourselves than we necessarily need to do.

So, if you look at just the Basel provisions, we were looking at it in our bank, the amount of extra capital that comes is quite large. It is quite huge. So, we are already doing that on the Basel front, you are putting 1 percent extra, you are putting capital conservation buffer, you are putting all kinds of things over there. Then you are coming here and you are again putting in so much more. At the end of the day what are we trying to prove, who are we trying to prove it to? So, we need to be reasonable in all of this. This is not something that we are doing today, this is not the first NPA cycle we have seen in the banking sector. How did we come out of the other NPA cycles? We have come out of them as well. In fact I continue to say and I have said this for the last four years that this NPA cycle is a better cycle because this time there are asset build-up which earlier was not there. Earlier times the bigger NPAs it used to be mostly trading it out and stuff like that where you did not have any idea about assets. Here actually there are assets – most of them, maybe not all of them but most of them. Even in respect of people like construction and all you may not have the complete asset but you have jobs done half way, if you can complete those, you will get those bills paid, you will get those guarantees back. So, it is not as though it is a total washout. What you really needed was some amount of liquidity to be given to these people under controlled circumstances so that the whole cycle can start moving. So, this kind of a rule based thing poses a huge burden. It unnecessarily shows the entire industry in a very poor light. As long as you are not seeing good results, people will not have the confidence to come back and invest in you again. That is the one thing that you really need to do in order to move forward.

Q: But are you making progress convincing the policy makers?

A: I think I have now retired from that piece, so I do not think I will be doing that

Q: People will still seek your advice I am sure, no matter in which position you are. We will definitely want you to come in and speak up on issues that will be better resolved if you spoke. For instance, even the Banking Board Bureau (BBB), you started by saying that we ought to have good board members. Do you think that board needs to be strengthened or replaced entirely by a statutory entity?

A: Actually the original idea of a BBB was to give it more powers and I think they started with this. Probably there is a roadmap that the government may be having. I am not too sure what is the roadmap that the government has. But, if you remember the PJ Nayak Committee also had laid out something which was much more empowered and I am sure the government has certain things in mind and it will come to pass. I am really not aware as to what is there. So commenting on it would be tough.

Q: The other suggestion that keep coming for the public sector is that maybe some of them should be privatised. Even if one or two are or even if the move is made by the government, the current ones will get better rates when they go to raise capital. Is privatising, as an experiment, a good thing?

A: I do not see anything as an experiment as a bad thing. You have to however understand that you do not want to create too much of a panic in a particular industry, that you need to do it in a calibrated manner. If you look at our bank and the merger that we went through, we did a huge amount of work in the background to assuage people's worries and this was merely from an associate bank, you are coming into the main bank. Not only that, you are coming from a smaller entity into a larger stronger entity.

So, really people should not have had any worries at all. But the amount of work that we did, we had a portal and on the portal, we asked people to post whatever their queries were, their worries were and at one point of time, more than 200 queries were getting answered daily. So, if you can understand any kind of change is something that is difficult for people to digest. They need to be told that this is not something that is going to put everyone at risk. So the conversations are on and the government has taken note of all of these and we do not really know what we will do.

Q: So your advice would be that let the banking system settle down, do not rush with mergers?

A: My advice would be that whatever we do, we do it after a lot of discussion and a lot of preparation of people's minds that this is why we are doing it and this appears to be the best way out and we go on that path.

Q: There are some experts that are suggesting hold back mergers now, let the NPA problems and other problems get settled. Is that good advice?

A: That is good advice because at the beginning, when you start doing these things, there is going to be a lot of pain. Now, if you ask me, people have kept on asking me that why did you not do it in your first year. One of the reasons, if you remember I had said, and I had approached the government about it, the advice that was given and it was very good advice, is let us get your house in order.

And that is what I did. I tried and got my house in order. Actually speaking the March quarter before the mergers, analysts did not have any queries about own bank. Not a single query, very few questions because whatever we had promised, we had delivered. So, then we were ready to take on the new challenges.

That is important. If you do not allow people to create a good platform and then take on the new challenges then the challenges may just sink you. That should not be done. Secondly, preparations are an absolute must. You cannot just do it on fine day.

Q: If you were to advise the government, let us assume you are in BBB or you were asked to advise, would you say privatisation, what would be your advice?

A: This is something that is very difficult at this point of time. The advice changes from time to time. So again, as I said, whatever needs to be done has to be done with full understanding of what will be the end result, it has to be done by ensuring that whoever is the entity that will remain, remains in a position that they can take on the new challenges that will come. There are very many ways of doing these as well. So you do not need to immediately do a full merger, maybe you can do a board merger, allow them to keep operating and then over a period of time, do it. So there are very many ways.

I am also not saying that all will be successful because you may envisage something, something else might come up, that always happens. So you have to be careful of those as well. But overall, I believe that whatever we need to do, yes, status quo is probably not the answer. That much I do believe.

Q: When I keep reading this and try to write edits on it, there are three things that keep coming. Capitalisation, privatisation, mergers. Where would you put yours?

A: I think capitalisation comes ahead of everything else. So capitalisation I do not see any way of putting it anywhere behind and I have been saying this for a very long time. In fact even with Dr Rajan, one of the biggest tussles that I used to have is, what I had said is asset quality review (AQR) is fine, it must go hand in hand with capitalisation and resolution. It cannot be a single standalone initiative.

If it takes time for resolution and capitalisation, let us get that on board and then let us get this going. It is not that we did not want that, but I wanted that if it is a tripod that all three legs should be firmly in place.

Maybe there were other perspectives or maybe there were some other requirements because of which one went first and then one has come and then the other one is being considered, but whatever it is, my own feeling is that this is the best way of addressing. If you put all three together, it works fantastically, then the down cycle is shorter in term and you can get back quickly.

Q: I promised you that this will be an NPA-free interview, so I am going to keep it that way, but the only thing is what you said in the press conference. Do you think that we are over the hump and at least the second half is going to be better or is it FY19 that we should pin off?

A: Actually, I was talking about my bank. I was not or rather, my earlier bank and really not in respect of the industry, but I do believe that we are either at the nadir or very close to it because most of the difficulties have already been taken care of. There will always be a flow. NPAs are something that happen because there are business failures and businesses will always fail, some of them, not the many that we were seeing, but a few will. And therefore, those will come.

But I think the major points of worries are all past us. The major reforms are past us. Now, it is a question of handholding all of these to ensure that they come out of this and that they start performing. The sheer pressure of demography in India is such that performance is a must. You cannot get away from that. So that being the case, yes I do think that we are almost at the bottom.

Q: This is Arundhati, the person. Monosyllabic answers. Calcutta or Mumbai?

A: At present, Mumbai.

Q: Hindi films or English films?

A: English films.

Q: Rabindra Sangeet or Hindi film songs?

A: Both.

Q: You trained?

A: No. That is one thing, I cannot hold a tune to save my life.

Q: Football or cricket?

A: Football.

Q: The happiest moment for you in your 40 year career?

A: I have had so many. Very difficult to tell you.

Q: Biggest regret?

A: I have a lot of regrets also, but the biggest one, probably you know that I could not see the end of this cycle. It is a regret because I fought with it for four long years. It was something I set out to do. We have resolved at least a dozen or more very large accounts. It is not that we have not. But yes, we have not seen the cycle through. But that will be a regret. But it does not matter, it is all in very good hands and it will all get taken of.