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With a new management in place, State Bank of India (SBI), the country¶s largest lender, is planning to focus on non-
performing assets. Managing Director


, in an interview with r
  and 
  , talks
about the new management¶s priorities and challenges. Edited excerpts:

*



 
 
  +, -
 -


--./
$$
 


 .
Our strategy cannot be either one or the other. Definitely, it would consider both. Being the largest market player in
India, we need to maintain our market share. However, we cannot sacrifice our profits. We would have to look at how
to improve our margins, while at the same time, dominate the market. There may be a few situations when we might
have to sacrifice margins to get business. Similarly, there could also be times when we would have to keep our
margins strong and therefore, have to forgo some business.

   

 - .
I think they should rise in the short term. Within a year, we would look at improving the margins. Going ahead, we
would also try to retain, if not increase, the market share.

/
 
-

 
.
I don¶t think there would be any major change in the vision or the things that we have been doing in the last couple of
years. However, there would be more emphasis on certain areas. We have to be the country¶s best bank, with a
sizable international presence.

/
$ 
   
 .
Non-performing assets would be a focus area, both this year and the next. Another area would be to continue to get
the support of our huge work force, numbering about 220,000. We have to continue to have a high level of motivation
and commitment from them. If these two are achieved, other visions automatically fall into place.

0-

$ 
   .
Our challenge is to improve the quality of assets. For this, we need to improve our monitoring system. Of course,
proper appraisals and proper sanctioning need to be carried out, but it is the monitoring and the follow-up which is
more complicated these days.

1'    


 +/ - $.
The Reserve Bank of India (RBI) has given us time till September 2011. I think we should be able to meet the
deadline.

/
$
23
 
  


.
As far as business growth is concerned, on the liabilities side, we may see a growth of around 25 per cent. Our
assets would rise 20 per cent this year.

We are looking at a target of 1,000 SBI branches 10,000 automated teller machines (ATMs) across India in the
current financial year. The thrust continues to be on opening brick-and-mortar branches. Even after the rise in the
number of ATMs, the average number of hits in ATMs is 300. Also, the footfalls in branches have not declined.

/
 - -   
 .
We are examining how to offer bundled products ² like a basic home loan product bundled with something else. It is
on the drawing board right now. The special home loan product was a success because it was needed then. But now,
two years have passed. So, we examined whether the same product is needed or not. With the new (home loan)
product, we are still competitively priced. Even while withdrawing that product, we have introduced a product which is
as competitive as the last.


 $
 $
  
-
+0-

 
.
About 30 per cent of our employees would retire in the next five years. So, one challenge SBI would face is to have
succession planning at each level. To solve this problem, we have recruited many people over the last two years.
However, it would take some time for the new recruits to be ready to fill in the positions at senior levels. We may also
need to look at to how to speed up the process of promotions to higher levels. For example, it takes 15-20 years for
someone to become a regional manager. We have to reduce that time.

      -

 
.
Competition is competition, be it from the private sector or the public sector. We should know how to take on
competition and perform better. We have to devise new products and find ways to stop poaching.

*$


-
 
-
+
We cannot afford to have issues with the regulator. We would continue to have very cordial relations.

/

3 
 

4 -.
There could probably be a rise of 25 basis points, not one of 50 basis points. A rise of 25 basis points would not hit
credit growth because there is also a need for credit, since companies need funds to support their growth plans.

 
c
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5
 5



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(6 %'(( '78*

It¶s not easy to single out !

5
, the unassuming new chairman of State Bank of India (SBI), from the
suit-clad crowd of delegates at the Asian Development Bank¶s annual meeting, held in Hanoi recently. In an interview
with 

  , the helmsman of the country¶s largest lender outlines his strategy for keeping SBI ahead.
Edited excerpts:

*
$   9
 

2-
 :!
+
/
-$
 $
-
.
It will not be a dramatic shift. At one time, people almost wrote off public sector banks and thought private sector
banks would be the banks of the future. Mr Bhatt made a signal contribution in correcting that and in repositioning
public sector banks as banks of certain substance. Simultaneously, one good thing is that we have narrowed the
technology gap with private sector players. The 100 per cent core banking has positioned us almost on an equal
footing with private sector banks. So, we don¶t have the technology handicap.

I think in the last three years, he (Bhatt) also did a good thing by restarting opening of new branches. For 10 years,
we didn¶t undertake branch expansion, fearing we did not do any recruitment. That vicious cycle was broken. We
recruited more people, and that helped us expand our reach.

It was important because most Indian towns and cities were expanding in new areas and our presence was largely
confined to the old areas. Unless we have good presence in the new areas, where the relatively young and affluent
people who own new houses are moving to, we will be left out in the cold.

-
- 
  .
There is a certain feeling that we have done very well in retail, home and car loan markets. In home loans, we have
become the leader in absolute and aggregate terms. In retail, at least on an incremental basis, we are the leader, or
maybe we are very close to it.

But, possibly, we have slightly neglected our corporate banking franchise. Our endeavour will be to retrieve some lost
base. Then there are areas we didn¶t enter because maybe we thought they were not very important. But from a
headline point of view, I think they are important.

/



.
Areas like bond underwriting and distribution. Though relatively small compared to the loan market, it is largely
dominated by Axis Bank and YES Bank. We would like to position ourselves in this.

*-
    +/
  
 .
There were concerns in a number of areas. One was the average age. That has been corrected to a large extent with
youngsters coming in and more older people retiring. But the kind of people we are getting is important because we
also have a rural network. You may get good people but they may not be willing to relocate to rural areas.

And today, banks not only have to deal with deposits and loans, they also have to offer insurance. Our young people
need to learn new skills.
/

$
  ; 
<=!
>.
A lot of good things have happened but one area where we have possibly trailed other banks is our net NPAs to total
assets. We are higher than the median.

We are trying to put more energy into this. We have put a deputy managing director-level officer in charge of this,
expecting a better and faster resolution of NPAs.

/$
   ;

.
For a company, if you do working capital lending, the price is µX¶. To the same company, the price of a term loan is µX
+¶.

In lending, with new regulations, we also have to look at the capital required. Broadly, if you lend to a company which
is top-rated, say AA, the capital required is less. But as you go down the credit spectrum by lending to an unrated
company, the capital required is significantly higher.

I am saying that to the same AA-rated company, when you lend working capital and when you give a term loan, the
returns from the latter are higher. By and large, in India, most term loans are against the security of fixed assets.

With new legislation like the SARFAESI Act, the lenders are not all that helpless.

You get a longer tenure, a higher yield and possibly, at a broad level, the nature of the security is also relatively
better.

 
  



 
-- +/


  
  .
The governor himself said the choice was between inflation and growth and after considering all pros and cons it was
decided to target inflation first. But in doing that they are aware that there is a trade-off between the two and that it
may lead to some deceleration in growth.

/


 $

$    
$
 .
I think it would have a greater impact on the term-loan capital asset funding because (for) working capital people
have to go on. Second, on the working capital side, large companies can always resort to external commercial
borrowings, which are pretty cheap.

But for a house-owner or a car-owner, it will be different. For example, EMIs of Rs 12,000 and Rs 15,000 are
materially different for a middle-class person.

We have seen in the past that if EMIs go up very sharply, there is deceleration in demand. I think a major impact
could be in the real estate sector.

/

-  -$
   .
We should not be seen as trying to stop others from getting licences. We should not be seen as being protectionist.

But this is slightly unusual if you consider that globally industrial houses are being given banking licences, and as the
past bears out, industrial houses have not been very successful in implementing them.

Banks which have been successful are the ones which have been promoted by groups or companies in financial
services businesses. And these groups do not have any other allied interests in manufacturing or trading.

We don¶t mind other people coming in but the banking industry is already very fragmented. Any bank which is below
a certain size will have to struggle, which we have seen in our associate banks.

/


 

3
 .
We pursue growth only if it comes with profit. Growth without profit doesn¶t help. We are looking at some jurisdictions.
Australia is an important one.
Over the last 5-10 years, there has been a significant increase in the number of students and professionals going to
Australia.

In a branch there, you cannot have a retail deposit of less than A$ 250,000, which is a relatively large amount for an
individual, especially a new immigrant. We are getting left out of this major segment. So, we are thinking of opening a
subsidiary.

Australia, we understand, goes by rules. If you put in $75 million or $100 million, you get a licence for a subsidiary
and then you can do branch banking.

Also, in the UK, we have got a retail licence. But to do retail business in the UK is very difficult in terms of asset
quality, as most delinquencies have happened in home loans.

We are taking slightly careful steps, but we have plans to roll out about four branches in London.

There is a lot of fascination with Indonesia, that it has good resources and all that, which is true. But that financing
can be done from Singapore.

0- 


$ - .
We will not measure it in physical terms. For example, to grow physically from $35 billion to $60 billion is not very
difficult. Unlike India, where you have to mobilise deposits, there assets are easy to come by and you can pick up
wholesale debt.

But the spreads are very thin. Second, our understanding of the risk profile and the risk market may not be very good.
Suppose we want to play in the bond market. We must have a detailed understanding of the interest rate movement
in those currencies. It takes a lot of expertise to be present in every market, in every sphere.

We will stick to our core competency, which is corporate banking, to the extent that it is useful to Indian companies.
Of course we will also do some local financing.


We¶ll need around `21,000 cr capital in next three-four years

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c Let me ask you about rates before I come to the higher provisioning norm. A 50 basis point hike in repo
rate ² I do not think you are a big borrower in the repo, but your saving rate, which is now almost 30-35%
of your total savings, your total resources ² that is going to be half a percentage point more expensive. You
are going to pay 4% on your savings. an give us an idea of what is the percentage of saving account for SBI?
More importantly, will it have to be passed on both the repo rate and the savings rate in the form of higher
lending rates?

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(6 %'(( '78*

It¶s not easy to single out !

5
, the unassuming new chairman of State Bank of India (SBI), from the
suit-clad crowd of delegates at the Asian Development Bank¶s annual meeting, held in Hanoi recently. In an interview
with 

  , the helmsman of the country¶s largest lender outlines his strategy for keeping SBI ahead.
Edited excerpts:

*
$   9
 

2-
 :!
+
/
-$
 $
-
.
It will not be a dramatic shift. At one time, people almost wrote off public sector banks and thought private sector
banks would be the banks of the future. Mr Bhatt made a signal contribution in correcting that and in repositioning
public sector banks as banks of certain substance.

Simultaneously, one good thing is that we have narrowed the technology gap with private sector players. The 100 per
cent core banking has positioned us almost on an equal footing with private sector banks. So, we don¶t have the
technology handicap.

I think in the last three years, he (Bhatt) also did a good thing by restarting opening of new branches. For 10 years,
we didn¶t undertake branch expansion, fearing we did not do any recruitment. That vicious cycle was broken. We
recruited more people, and that helped us expand our reach.

It was important because most Indian towns and cities were expanding in new areas and our presence was largely
confined to the old areas. Unless we have good presence in the new areas, where the relatively young and affluent
people who own new houses are moving to, we will be left out in the cold.

-
- 
  .
There is a certain feeling that we have done very well in retail, home and car loan markets. In home loans, we have
become the leader in absolute and aggregate terms. In retail, at least on an incremental basis, we are the leader, or
maybe we are very close to it.

But, possibly, we have slightly neglected our corporate banking franchise. Our endeavour will be to retrieve some lost
base. Then there are areas we didn¶t enter because maybe we thought they were not very important. But from a
headline point of view, I think they are important.

/



.
Areas like bond underwriting and distribution. Though relatively small compared to the loan market, it is largely
dominated by Axis Bank and YES Bank. We would like to position ourselves in this.

*-
    +/
  
 .
There were concerns in a number of areas. One was the average age. That has been corrected to a large extent with
youngsters coming in and more older people retiring. But the kind of people we are getting is important because we
also have a rural network. You may get good people but they may not be willing to relocate to rural areas.

And today, banks not only have to deal with deposits and loans, they also have to offer insurance. Our young people
need to learn new skills.

/

$
  ; 
<=!
>.
A lot of good things have happened but one area where we have possibly trailed other banks is our net NPAs to total
assets. We are higher than the median.

We are trying to put more energy into this. We have put a deputy managing director-level officer in charge of this,
expecting a better and faster resolution of NPAs.
/$
   ;

.
For a company, if you do working capital lending, the price is µX¶. To the same company, the price of a term loan is µX
+¶.

In lending, with new regulations, we also have to look at the capital required. Broadly, if you lend to a company which
is top-rated, say AA, the capital required is less. But as you go down the credit spectrum by lending to an unrated
company, the capital required is significantly higher.

I am saying that to the same AA-rated company, when you lend working capital and when you give a term loan, the
returns from the latter are higher. By and large, in India, most term loans are against the security of fixed assets.

With new legislation like the SARFAESI Act, the lenders are not all that helpless.

You get a longer tenure, a higher yield and possibly, at a broad level, the nature of the security is also relatively
better.

 
  



 
-- +/


  
  .
The governor himself said the choice was between inflation and growth and after considering all pros and cons it was
decided to target inflation first. But in doing that they are aware that there is a trade-off between the two and that it
may lead to some deceleration in growth.

/


 $

$    
$
 .
I think it would have a greater impact on the term-loan capital asset funding because (for) working capital people
have to go on. Second, on the working capital side, large companies can always resort to external commercial
borrowings, which are pretty cheap.

But for a house-owner or a car-owner, it will be different. For example, EMIs of Rs 12,000 and Rs 15,000 are
materially different for a middle-class person.

We have seen in the past that if EMIs go up very sharply, there is deceleration in demand. I think a major impact
could be in the real estate sector.

/

-  -$
   .
We should not be seen as trying to stop others from getting licences. We should not be seen as being protectionist.

But this is slightly unusual if you consider that globally industrial houses are being given banking licences, and as the
past bears out, industrial houses have not been very successful in implementing them.

Banks which have been successful are the ones which have been promoted by groups or companies in financial
services businesses. And these groups do not have any other allied interests in manufacturing or trading.

We don¶t mind other people coming in but the banking industry is already very fragmented. Any bank which is below
a certain size will have to struggle, which we have seen in our associate banks.

/


 

3
 .
We pursue growth only if it comes with profit. Growth without profit doesn¶t help. We are looking at some jurisdictions.
Australia is an important one.

Over the last 5-10 years, there has been a significant increase in the number of students and professionals going to
Australia.

In a branch there, you cannot have a retail deposit of less than A$ 250,000, which is a relatively large amount for an
individual, especially a new immigrant. We are getting left out of this major segment. So, we are thinking of opening a
subsidiary.
Australia, we understand, goes by rules. If you put in $75 million or $100 million, you get a licence for a subsidiary
and then you can do branch banking.

Also, in the UK, we have got a retail licence. But to do retail business in the UK is very difficult in terms of asset
quality, as most delinquencies have happened in home loans.

We are taking slightly careful steps, but we have plans to roll out about four branches in London.

There is a lot of fascination with Indonesia, that it has good resources and all that, which is true. But that financing
can be done from Singapore.

0- 


$ - .
We will not measure it in physical terms. For example, to grow physically from $35 billion to $60 billion is not very
difficult. Unlike India, where you have to mobilise deposits, there assets are easy to come by and you can pick up
wholesale debt.

But the spreads are very thin. Second, our understanding of the risk profile and the risk market may not be very good.
Suppose we want to play in the bond market. We must have a detailed understanding of the interest rate movement
in those currencies. It takes a lot of expertise to be present in every market, in every sphere.

We will stick to our core competency, which is corporate banking, to the extent that it is useful to Indian companies.
Of course we will also do some local financing.