In Conversation With SBI Chairman CS Setty

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00:00We are here not on account of speed but on account of direction and intent.

00:08Right direction, right intent is something what brought us here in terms of the size,

00:12in terms of the positioning.

00:16So that philosophy of pursuing those objectives will remain.

00:21I think that's the first thing I would like to say.

00:26With the strategies in terms of what needs to be done in the business, in terms of our

00:33strategic directions, in terms of technology, what I intend to do is that in the last three

00:42to four years, we built a strong balance sheet.

00:49We have invested significantly in the technology and digitalization.

00:55Now we have to leverage on that.

00:59The leverage is of two kinds in the sense that, you know, we have unparalleled branch

01:04presence, ATMs, business correspondents, and how do I marry this technology and digital

01:14to reach across the channels and increase the productivity would be my first priority.

01:20The productivity gains on account of the technology investments would be the focus.

01:27So the second feature would be that we have been succulently growing while we had a large

01:38retail growth for a couple of years and when corporate growth was not happening.

01:42If you see retail personnel, MSME, agriculture, corporate, almost having a double-digit growth.

01:52That means my focus on a particular segment is not there now.

01:59I need to grow in all the segments and I have the potential to grow.

02:05But among them, if I have to take out and I see that there's a good amount of income

02:15potential, earning potential in the MSME now, today, and we believe that the kind of data

02:23set what is available in terms of GST, in terms of our own account statement analytics,

02:32the MSME lending is much more confidently we can lend to the MSMEs than what we were

02:38doing earlier.

02:40So the focus would be on the business front.

02:43These are the areas which we are going to do and for all these things, the central agenda

02:47would be the technology and digitalization.

02:50As you know, 2.0 also is going to be something which is going to be available during this

02:54period and which is going to completely transform the customer experience across the channels,

03:00omni-channel experience.

03:03So if I have to, you know, my answer is somehow, these are some of the things, but I think

03:07there are a lot of elements which go into it, you know, to achieve these objectives.

03:11I'm not getting into the numbers, obviously, the numbers, you will definitely come to that

03:15numbers later.

03:16I'll answer them.

03:17Okay.

03:18Let me break this up, Ramachari.

03:20You've got a massive loan book, right, and equally massive deposit.

03:26In fact, your deposit book is larger than the loan book currently.

03:31As a lender who's currently looking at the macro environment, as well as the environment

03:35in the banking sector, growing a big book like yours in an extremely competitive sort

03:43of landscape, whether it be liabilities or assets, how do you think that will go by in

03:49the next three years?

03:51Yeah.

03:52One thing, at the management level, we decided, and even the board level, we have decided

03:58that our growth will not come at any cost.

04:04I said in some context also that if I'm fighting for deposits or competing for deposits, I

04:11would compete on non-rate war, you know, I don't want to get into the rate contest.

04:17Yeah.

04:18I would like to improve the service quality and our customer base is huge and some of

04:24them probably not happy with some of the services.

04:29How do we bring them back?

04:30We have identified the whole universe of our customers who are the promoters, who are promoting

04:37our services.

04:38You know, their SBI is good, you place a bank with SBI, and then we have stagnant customers.

04:44That means, you know, they have an account, but have not been transacting.

04:47We would like to reach out to them and ask them what makes you to come back.

04:52And there are attitudes.

04:53They're leaving.

04:55Some of them probably are leaving for some reason.

04:56We would like to find out, you know, what are those reasons which are making them to

04:59leave.

05:00In the sense that our effort would be to fight on non-rate, you know, contest, not on the

05:08rate war.

05:09Okay.

05:10So is the case with the undercredit.

05:11When you talk about the credit, the credit growth, we would like to do without compromising

05:17on underwriting standards.

05:18I think this is something which we hard-fought and established very, very strong underwriting

05:24standards today.

05:26And there is no way we can compromise on that.

05:29And even if the book grows a little slower, it's fine with us.

05:32Okay.

05:33Fair enough.

05:35Coming within the lending ecosystem, two major parts, you've got a non-wholesale and a wholesale

05:41piece.

05:42Within the non-wholesale piece, you've got retail, you've got MSME as one of the focus

05:46areas, as you mentioned.

05:47I want to touch upon retail and then come to MSME.

05:49First, retail, extremely competitive, unsecured, not so exciting for lenders at this point

05:56in time after the Reserve Bank of India raised some concerns.

05:59And of course, you are seeing some amount of slippages on that side as well.

06:03You and I'm saying the banking system, SBI and so on.

06:07To your mind, what is retail growth looking like for SBI, for the ecosystem?

06:13Do you think that maybe the times of that extremely 30%, 35% growth is sort of behind?

06:19Yeah, I think the CSG of the 35% what we witnessed may not happen for two reasons.

06:26I think there was some pent up demand which resulted in that kind of growth.

06:31Obviously, it will moderate over a period of time.

06:35And the RBI measures also definitely have impacted the unsecured loan growth rates.

06:42But in our book, if I have to talk about SBI, as we keep on saying that there are unsecured

06:48loans and there are unsecured loans of SBI.

06:51So our policy would be that how do we strengthen and expand the user base?

06:59We don't want to give unsecured loan to the same person.

07:02So we have a significant number of salary package account customers who have not taken

07:09these unsecured loans yet.

07:11So we would like to reach out to them.

07:13And I think our potential is there.

07:15I'm not saying that we would be witnessing 30 to 35% growth rates what we've had earlier.

07:22Obviously, to cover on the additional risk base, we may have to increase the rates.

07:29Some amount of rate increase probably would happen in unsecured loan space.

07:33But our effort would be to get the best quality customers into our books.

07:37That's the unsecured piece.

07:39On the secured side, under your predecessor, the focus on the home loan has come back pushing

07:45that product as one of the major drivers of your retail book.

07:49Where does that go from here on?

07:51Because the reason I'm saying this is because hopefully the rate cycle is going to turn.

07:54So there is expectation that the demand is going to pick up again.

07:58Demand is still there.

08:00I think we are doing the run rate is very good under home loans.

08:04And I don't think there is any concern in terms of the home loan growth rate.

08:11I think that is one product which is doing extremely well in our books.

08:15And we'll continue to do that.

08:16And today we have the largest number of processing centers across the country, home loans.

08:22I don't think anybody else has got so many processing centers, which has reduced the

08:27turnaround time.

08:28Today we are able to give a home loan in five days.

08:31So we are not only competing, yes, our rates are customer friendly, competitive rates.

08:37But beyond that rates, we are also providing the excellent customer service.

08:42We are one of the most trusted home loan provider in the country.

08:46We do extreme due diligence on the buildup and the paperwork.

08:51And these are also some of the USTs, which are not visible to anyone, but people would

08:55like to take home loan from SPI because of the due diligence which we do.

09:00And we protect the customer interest when they are buying the property.

09:04So I think that home loan book and the secured retail personal portfolio, I think that will

09:10continue to grow and will be one of the flagship products for us, a flagship product.

09:15Coming to the other focus area that you mentioned about MSME, what took bankers so long to realize

09:21that, okay, this is a growth area because, you know, there was about 10 odd years of

09:26corporate credit growth, which then translated into retail credit growth.

09:30Now finally, lenders, especially somebody at the size of SBI is talking about MSME as

09:36a potential growth area.

09:38What is it that kept lenders out of the ecosystem so far?

09:42And what is it that you're seeing at this point of time has changed for you to enter?

09:46See, we have been traditionally lenders to the MSMEs.

09:49While the growth rates have been impacted, we were always the largest lender to the MSMEs.

09:57Even in the worst times, I think our MSME book was largest in the industry.

10:03The growth rate was lower.

10:05Essentially, I think some of the factors which had impacted MSMEs were, you know, who would

10:14depend on the large corporates and when the large corporates got into trouble, obviously,

10:19they also had, and they didn't have the bandwidth to, you know, handle the issues which they've

10:26come out with.

10:28That made the growth rate to slow down and even the absorption by the MSMEs itself has

10:33come down.

10:35But today, I think MSMEs are also doing well, as the corporates are doing well, number one.

10:42Number two, my ability to assess the needs of the MSMEs in a holistic manner without

10:49depending on, you know, the piece of paper what MSMEs are giving to me, a balance sheet

10:53or a P&L, I have a host of data which is available, whether it could be bureau data, it could

10:58be a GSTN data, or my own internal account data, which I'm able to triangulate and tell

11:03them that this is the loan limit which is available to you.

11:07So my ability to assess MSMEs, not the medium-sized entities, but mainly the small, small size

11:16up to five crores.

11:17Today, up to five crores, we have completely, assessment is moved to a business rule engine

11:23based.

11:24Okay.

11:25That means, you know, if a customer comes and gives his PAN card, I don't need any paper,

11:30just PAN card.

11:31In 15 minutes, I will be able to tell him up to five crore rupees, whether what is the

11:35loan amount which he is going to get.

11:37So I think this confidence is what is somehow driving everyone, not necessarily SBI.

11:42I think the whole system is growing at 20%, correct?

11:46So the confidence level on the governance part and in terms of the data quality part

11:52has improved on the MSMEs, which is making the lenders to definitely go on.

11:57And the second important element which is also contributed is CGTMSC guarantees available

12:03up to five crores.

12:04Okay.

12:05Which is a good development.

12:06Okay.

12:07Okay.

12:08So for the bankers, there's that amount of confidence for those smaller loans.

12:11Got it.

12:12Let me touch on the wholesale piece now.

12:15Like CapEx has been making a comeback for three years, finally, seems like it's here.

12:20There is some amount of rejuvenation within the corporate segment.

12:26In fact, you know, we had the RBI governor just talk about the fact that companies need

12:31to start coming in and really need to start spending.

12:36As a lender who's active in the space and is probably going to lead the charge as far

12:40as private borrowing is concerned.

12:44How do you manage that growth without compromising on risk, without compromising on any kind

12:49of pricing issues?

12:50Because pricing has been a big talking point as far as corporate lending is concerned.

12:55No, I think there's two things I already told you that we have set up an underwriting standards,

13:00whether it is a retail, whether it is MSME, whether agriculture or corporate.

13:05I think our underwriting standards, we are not going to compromise.

13:09When I say underwriting, it's not about the paperwork.

13:12It's about the way we assess the project.

13:15For example, maybe, you know, a few years ago, if a road project is there, we were trusting

13:21that the land will be available, right of way will be available.

13:25And even with 50% right of way, probably we were giving the money.

13:28Today, our underwriting standards say that unless 95% right of way is available, not

13:34even one rupee is given to them.

13:37Which means that the whole ecosystem also has changed and the quality of equity has

13:44changed.

13:45And the promoters are willing to bring the upfront equity, equity available in the form

13:49of private equity or their own cash accruals, which they were able to make in the last two

13:55or three years.

13:56That means the upfront equity is available.

14:00And we are insisting that whatever statutory approvals are required, the statutory acquisition

14:04of land is required, that needs to be in place.

14:08So which gives us confidence that, you know, the kind of cycle which we have seen will

14:13not happen now.

14:14That is on the underwriting side.

14:17And the pricing side, I certainly believe that I think the risk is not being priced

14:22properly in the corporate side even today.

14:26And we don't want to get into that situation.

14:29I personally believe that project finance, where the risks of execution are there, that

14:35execution risks have to be properly priced.

14:39Once the execution risk is over, it can move into a securitization date where the pricing

14:44can be a market related pricing.

14:47I think it is important for all of us lenders, particularly in the corporate banking and

14:51project financing to realize that the execution risks have to be priced properly.

14:56And we are not compromising on that.

14:59But doesn't that make it difficult to grow?

15:03So I think people also come to us because of our ability to assess the project.

15:08It's not just price the project, it's not about pricing alone.

15:12Yeah, once the execution is completed, obviously the price war starts and so, you know, they

15:18go around shopping.

15:19But as far as project financing has been an issue, I think still SBI is a preferred bank.

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