Executive Speak: OP Bhatt, Chairman and Managing Director

Q. What are the key challenges before the Indian banking industry? And what measures should be adopted by the regulators and Banks to overcome them?

A. The key challenges today before the Indian banking industry are (a) Maintaining asset quality, (b) Protecting Net Interest Margin and (c) Raising capital while simultaneously pursuing the twin objectives of technology upgradation and financial inclusion.

Maintaining asset quality in the midst of the global crisis involves having in place, excellent credit risk management practices, sound early warning systems for identification of weak accounts and potential NPAs, and timely restructuring of NPAs and proper follow-up thereafter.

Protecting Net Interest Margins is easier said than done and needs to be tackled both on the Assets and the Liabilities side. On the one hand, yields on the loan book have to be maximised, taking into account the Bank’s priority sector commitments and other low yielding advances and by ensuring decent returns on the rest of the portfolio without, of course, compromising on quality. On the liabilities side, raising low cost funds is a big challenge especially because it is not easy to lower deposit rates simultaneously with every reduction in PLR. Increasing CASA (Current Savings Bank Accounts) is therefore, the objective of most banks, ours included. If banks are to maintain their profitability, a minimum Net Interest Margin of at least 2.5% will need to be maintained.

As far as raising capital funds are concerned, going forward, the Public Sector Banks especially will all need to raise huge amounts of capital to support their credit growth. Financing of the infrastructure sector, will, in itself, require huge resources, a good proportion of which will have to come from banks. As far as regulatory measures are concerned, in Public Sector banks atleast, the Government may need to find a way of diluting stake while simultaneously retaining control through the issue of ‘a golden share’ or similar instrument, so that the PSBs can raise capital resources from the market.

Q. Do you believe that there is a need for consolidation in the Indian Banking industry? What according to you are the merits and demerits of consolidation?

A. I have always advocated the need for consolidation in the Indian Banking industry for obvious reasons. Globally, it is the size of capital which is reckoned for measuring the strength of a bank, and mergers and consolidation are one way of strengthening Tier I capital. Consolidation also has other advantages like increasing your share in different markets or in different businesses, besides resulting in cost reduction through elimination of duplication, and reduction in overheads. Consolidation would also result in better leverage of technology and optimum utilisation of human resources, all of which, would benefit the customers. In India, we have the example of HDFC Bank which merged with Times Bank and this entity then merged with the already merged Centurion Bank and Bank of Punjab to form one large bank. IDBI Bank has similarly merged with its parent and further acquired another bank. At SBI, we have merged with the smallest of our Associate Banks viz. State Bank of Saurashtra and this has resulted in several of the synergies I just mentioned. A proposal is pending before the Government and RBI for merger with another of our Associates viz. State Bank of Indore. We are proceeding a trifle slowly but after taking into account, the interests of all the stakeholders.

Q. What role does technology play in your bank in terms of enhancing customer experience, and improving functional efficiencies?

A. The Bank believes in leveraging technology to improve operational efficiency and thereby improve customer service. Technology must also result in reduction of transaction costs, which can be passed on to the customer. Take for example our network of over 12,000 branches and over 14,000 ATMs all on the Core Banking Platform. This is the largest network of its kind anywhere in the world. Through CBS, a jawan posted in Kargil can remit money to his family in some rural branch in Kerala, in a few minutes. And Core to Core remittances for amounts upto Rs.20,000/- is absolutely free. Even non-customers find our branch network and Core Banking Platform very convenient. A construction worker in Mumbai, who doesn’t even have an account, is using technology to remit cash to his wife’s account somewhere in a village in Uttar Pradesh, at a very normal charge. A far cry from the days of purchasing a bank draft, paying bank commission and couriering it or posting it at your own cost. Most banks are on CBS, but we have the advantage of this huge outreach because of our vast network of branches. We are everywhere. We have opened about 2,000 branches in the last two years and will open another 1000 branches this year.

Similarly, our vast network of over 14100 ATMs has benefited not only our customers, but the customers of other banks as well, simply because of sheer availability. On the 12th July this year, we opened as many as 2,151 new ATMs on a single day in addition to 154 branches i.e. 11 branches in each of our 14 circles. The usage figures of our ATMs are truly mind boggling – an average of 4.4 million transactions per day and disbursal of Rs.26000 crores or > USD 6 billion in cash every month. Our ATMs also provide a host of services such as Funds Transfer, Card to Card Transfer B2B payments, Fee payments, Utility Bill payment, Mobile Top Ups, donations to Temples and Trusts, Payments to SBI Life Insurance, SBI cards etc. We are the largest issuer of debit cards in South Asia with a card base of 55 million. We plan to take our network of ATMs to 25,000 by March 2010. Such a huge network of ATMs is going to benefit accountholders of all banks as access has been made free to all by RBI.

The Core Banking platform has enabled centralized disbursement of pensions through dedicated cells and SBI was the first bank to disburse revised pension and arrears to Central Government pensioners last year. Technology is also being taken by us to the vast hinterland of Rural India. Our SBI Tiny Card based on Smart Card Technology, enables a villager to transact literally from his door step by swiping his smart card on a hand held devise with say, the postman or a shopkeeper. We have also embarked on reaching out to customers through an Internet Kiosk based channel, which works on bio-metric validation of the customer. These kiosks will be manned by operators and will allow the customer to transact locally eliminating the need to visit a branch. We plan to extend this facility to 100,000 villages. Our Internet Banking facility provides state of the art online banking experience to the customers. The customers can carry out a host of transactions online, such as funds transfer, bill payments, Demat Account statement, online tax payment, account opening and cheque book issue requests, etc. Mobile Banking facility has also been introduced recently. Through our Business Reengineering Project (BPR), we have spun off several operational functions such as clearing, cash administration, cheque book issue, Pensions, Loan Processing to specialised Processing Cells which has made our branches leaner and more vibrant enabling them to focus on product delivery and marketing.

In a separate initiative, all our Administrative Offices, Training Colleges and 47 Learning Centres have all been linked through video conferencing facility which has enhanced communication within the organisation. Our HRMS (Human Resources Management Solutions) project is another example of leveraging technology for improving speed and efficiency. It aims at automation, integration and centralisation of all HR related activities across the group. It has enabled centralised payment of salaries of over 2 lac employees and pension of 1.1 lac bank‘s pensioners, apart from providing online services to employees for viewing their leave records, provident fund balances etc. This will result into a cost saving of about Rs. 100 crs per annum, apart from release of 1500 personnel for core activities. Technology leveraged through our large network has, thereby, resulted in and is going to result in greater operational convenience and tremendous savings in terms of cost and time for our customers as also the user public. Most importantly, technology is going to enable financial inclusion in a big way. We are really serious in our mission of being ‘The Banker to Every Indian’.

Q. As an aftermath of the global financial crisis, do you see an alarming rise in NPAs for your bank? What are the sectors where you think NPA levels may rise phenomenally?

A. Despite a very difficult 2008-09, we managed to keep our NPAs under control and the Gross and Net NPA % were brought down to 2.84 (from 3.04% in 2007-08) and 1.76% (from 1.78%) respectively. But it should also be recalled that during 2008-09 most banks, our included, availed of the dispensation provided vide RBI’s circulars for restructuring of accounts. We are closely monitoring these accounts to ensure that they retain their status of ‘standard’, but the global malaise is far from over and some companies, notably export dependant companies, are still grappling with the situation, which gives me the feeling that further slippages will occur in loan accounts. Gem and Jewellery, Textiles, Auto Components, IT and ITES are some of the sectors which are yet to recover.

Q. What initiatives has your bank undertaken in the areas of Micro finance, Financial inclusion etc?

A.The Bank has cumulatively credit linked more than 14 lakh Self Help Groups (SHGs) and is the market leader with a share of more than 43%. To further increase its outreach to the poor, we have been lending to NGOs and Micro Finance Institutions, including Micro Finance NBFCs, for on-lending to SHGs and individuals. Various products and schemes like the SHG credit card, the SHG Gold card and the Sahayog Niwas which enables HSG to on lend to its members for rural housing have been brought out by the Bank. We are also working with various State Governments on special schemes for e.g. with the Orissa Government and an NGO ‘Samanwita’ we are working on a project for the socio economic upliftment of the tribals in the poorest and most backward Kandhamal district.

We have covered more than 85,000 villages through the Business Correspondent / Business Facilitator model. Of these, 55000 villages are unbanked. We are taking our services to another 50,000 unbanked villages during the current year. Over 50 lakh ‘No Frills Account’ have been opened including those under the NREGA and SSP Schemes. The Bank has entered into National Alliances with ten entities including IndiaPost for extending coverage through the BC/BF model. Our Life Insurance subsidiary SBI Life has brought out a product ‘Grameen Shakti’ which has been launched in 6 states and will be rolled out in all the states during the current year.

Our aim is to ultimately have a presence in every Indian village through one or more delivery points be it through a branch or ATM, or through Smart Card Technology, or Internet Kiosk etc.