Not Looking At Any Merger Situation - B Sriram, Managing Director, State Bank of Bikaner and Jaipur

Nobody controls foreign exchange, whether it is the RBI or the government. It is very clear that they will only address the volatility. They are not in the business of controlling and maintaining the exchange rate. It is for demand and supply to find the balance as to where the exchange rate will stand.

Considering that the RBI has started the process of issuing new banking licenses, how will the entry of new players change the banking landscape in India? 

We need more banks because there are substantial areas of unbanked places across the country. We also need banks with huge resources. This will lead to some consolidation and provide enough space for the new players to establish themselves. Of course each bank will have to find its niche and identify specific operational areas within the framework of the RBI’s guidelines and policies. The entry of new banks will pave the way for new products, more competition, and better services to the customer, in addition to reaching out to every nook and corner of the country. I don’t think it will be a threat. In fact, we would welcome new players because they will bring with them new skill levels.

From a financial perspective, do you think the Indian growth story is still intact as FIIs have their own concern?

The Indian story is always intact. Even today we have a growth rate of 5.50 to 6 per cent, which is reasonable. Secondly, the demand in India is so high that everybody always wants to invest in India. Consumer demand, rise in middle-class, and the consumption pattern of the middle-class are some of the factors that provide a huge market for various industries and sectors like retail. This interest in India is also driven by the growth of Tier II and Tier III cities. Therefore, I am sure that the Indian story is quite bullish. 

Considering the present situation do you foresee the volatility in rupee to continue? Do the RBI and the government have enough muscle power to stem this volatility? 

I don’t think this volatility will continue as both the RBI and the government are in constant dialogue and stability would certainly be achieved soon. Here we have to understand that nobody controls foreign exchange, whether it is the RBI or the government. It is very clear that they will only address the volatility. They are not in the business of controlling and maintaining the exchange rate. It is for demand and supply to find the balance as to where the exchange rate will stand. 

In order to stem volatility and depreciation in rupee do you foresee further monetary tightening in coming times if the dollar remains at a level of around Rs 60?

As I said earlier, we have to wait for a couple of weeks to see how the current measures pan out. Only then we can do an analysis or review of these measures to find out exactly how the markets will react. I am sure that these are only short-term measures that the government is looking at and once the concern of the RBI and the government is addressed, things will be back to where we started from. 

If you compare two sets of banks i.e. PSU banks with private banks in terms of profitability, it appears that in the last three-four years private peers have fared well over PSU banks. What is the main reason for it?

It is not right to compare these two sets of banks. There are times when PSU banks perform well and at other times it is the reverse. It depends on certain cycles in terms of where the stress sectors are and how much exposure a particular bank has in that particular sector. That actually defines the performance. Today infrastructure is slightly weak and so those banks especially PSU banks that have higher exposure in infrastructure and iron steel will find the problems slightly more difficult to surmount. This is just another phase in the banking cycle and I am sure the PSU banks will come out of it.

How do you see the interest rate scenario panning out ahead in FY14? 

The wise thing would be to wait and watch since steps have been taken by the RBI to manage liquidity and forex volatility. In my opinion, it might take a couple of weeks to get a clear picture as to how the rate of interest settles down. 

What is your outlook on credit as well as deposit growth for FY14?

We are expecting credit growth of around 12-15 per cent which would be fairly good in the current growth rate scenario of 14-15 per cent. For the last five years the average growth for SBBJ was between 15 to 17 per cent. There would be some cooling off but 15 per cent can be achieved. For the banking sector as a whole, growth in the first quarter has been a little low at 12.5 to 13 per cent but I am sure that going forward it will be around 15 to 17 per cent. Deposit growth also will be around the same levels, more or less. 

How is the SBBJ placed on the capital adequacy front? 

We adhere to capital adequacy norms of 12 per cent and well above 9 per cent for Tier I regions. In that sense we are well capitalised.

Is there any increase or decrease on the domestic front in terms of deposits since people are very nervous about consumption? Is this translating into growth in deposits or savings? 

Generally, the first six months are called deposit months as credit off- take is not high while the second half is called the credit season. The current trend is more or less the same as retail deposit has grown at a rate of 14-15 per cent in Q1 and this trend is likely to continue. The deposits in India and various Asian countries usually remain high in comparison to western economies. We work on a model where we capitalise on our deposits and saving rate of 30-35 per cent and utilise it for developing the infrastructure. As such, I don’t think the Asian need for savings will drop. 
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How has SBBJ fared in terms of NIM and what is your expectation for FY14?

Banks that have got good CASA usually are in a better position to manage their NIMs. We are one of those who have decent CASA at 37- 38 per cent. Our NIM for the last year was 3.62 per cent and we hope to hover around the 340-350 basis point mark despite the current pressures. Actually, with high CASA, the cost of deposits is usually low and that helps a bank to maintain good NIMs. Some of the private banks have NIMs in excess of 4-4.5 per cent. Meanwhile, we have recorded good retail growth in Rajasthan as 85 per cent of our branch network is spread in that state. We are the official salary account holders in Rajasthan as well as and we have a huge chunk of pensioners who bank with us. That has actually given us the necessary strength to build on the savings’ accounts.

There have been many media reports about your proposed merger with the SBI. When will this take place?

We are not looking at any merger situation with any bank. Regarding associate banks, I don’t have anything much to say on whether they will be merged or stay independent. All these decisions will be taken at an appropriate time by an appropriate authority. As of now there is nothing on the table as regards the possibility of a merger with the SBI. As far as integration is concerned, in the banking sector it can happen only between like and like and not between like and dislike. We have seen consolidation in the past as two of our associate banks are already merged with the SBI. 

How much is your gross NPA and NNPA?

Our gross NPA was at 3.62 per cent for the quarter ending March 2013. It has increased by a few basis points over the corresponding quarter in March 2012. In terms of value it has increased by Rs 220 crore to reach Rs 2119 crore till March 2013, which works out to 3.62 per cent while the net NPAs remained at 2.27 per cent. This increase is reflective of the stress in some of our bigger accounts. 

Considering that we do try and restructure them and help out with corporate debt restructuring methods or internal restructuring, it takes some time to come out of the NPAs. But I am confident that most of them will be back to their performing levels in the next year or so.

Which industry or sector accounts to maximum NPAs? 

Mostly iron and steel along with infrastructure account for a majority of the NPA cases. There are no hardcore NPAs among them and they should be back to normal once the economy improves. The NPAs have grown only in recent times, largely over the last two-three years, but at the same time the advances’ portfolio of the banks have also grown in that same period as exposure to corporates in a major way only happens during this period. All sectors have their own highs and lows and when they come back they recover most of the accounts. Our NPA mix goes like this: 40 per cent in corporate, 40 per cent in agriculture, and the balance 20 per cent in other sectors. Actually it also changes quarter to quarter. On the agriculture front, in the last couple of quarters the NPAs have remained under control as a lot of recovery has taken place.

We are not looking at any merger situation with any bank. Regarding associate banks, I don’t have anything much to say on whether they will be merged or stay independent. All these decisions will be taken at an appropriate time by an appropriate authority.

What is your focus on non-interest income and how much does it contribute to your revenues? 

The non-interest income is not a very substantial chunk as traditional banking business is based on interest income. Non-interest income does add up in terms of treasury income at times when yields go low and there is an opportunity to make some profit. Otherwise, other sources of non-interest income like forex, government commission, processing fees, etc. generally have a growth rate of 10-15 per cent YoY. In our case, the share of non-interest income to our revenues is about 10-15 per cent. 

In terms of SBBJ’s overall growth prospects, do you foresee the same kind of profit margins as were in the last couple of years or will there be an increase? 

Our growth prospects would, more or less, remain on the same levels but it would be best to wait for a couple of quarters and then arrive at a judgement based on the results.

Going forward what will be the biggest thing that will carry SBBJ into the future in terms of revenue? 

We will continue to perform strongly with the interest income as our margins are comfortable. Last year we maintained NIMs at 3.62 per cent and so I expect to continue doing well. I am sure that our strong presence in Rajasthan, where a lot of investments are expected in the next few years, will help our commercial and retail business to grow further. This will help us capitalise on our market share, which is at a level of 23-24 per cent. So the focus will particularly be on interest income supported by non-interest income. So far, we have not been planning for non- interest income but we will certainly not let go of any such opportunity.