State-Run Banks Need To Up Their Game, Says Arundhati Bhattacharya
It’s time the public sector banks realise that they have to stand on their own feet, says the former SBI chairperson.
State-run lenders need to harness the advantages of digital technologies and risk-management processes in order to “claw back” on their lost opportunities, according to former State Bank of India Chairperson Arundhati Bhattacharya.
“Public sector banks have to up their game as lending isn’t plain vanilla anymore,” Bhattacharya told BloombergQuint in an interview. “You need to have the right kind of risk-management processes, underwriting standards and exploit the digital platforms to reduce costs and increase volumes as their margins have shrunk.”
On Banking Recap
Lenders would be in the spotlight on how they successfully overcome their capital-gathering issues, Bhattacharya said, adding that banks could raise funds by selling their non-core assets as stressed by the government or by reducing their risk-weighted assets.
A capital injection of Rs 88,139 crore from the government was announced in a presentation made by the finance ministry earlier this year. This was the first tranche of the Rs 2.11 lakh crore recapitalisation plan that the government had first announced in October 2017.
It’s time the public sector banks realise they have to stand on their own feet. They cannot look to the government every time for capital but have to garner it themselves if they wish to grow.Arundhati Bhattacharya, Former Chairperson, State Bank of India
Bhattacharya also said the government’s plan to consolidate banks could be a challenge in the short term but beneficial in the long run as it results in stronger institutions as long as the human resource issues were addressed in the process.
Watch the full interview here:
Here’s the edited transcript:
Banks were one of the primary sources of funding for non-banking finance companies. How is that situation looking like from a banking perspective? And whether they have become tight-fisted in giving out those wholesale funding?
NBFCs need to understand that they can’t be lazy on liability side. For the NBFCs, the main concern was always how to make their assets grow. Now, they need to take into consideration how their liabilities grow and that’s how NBFC should be. It shouldn’t be a question of banks taking deposits, passing on money to NBFCs and then NBFCs doing the last-mile lending. That cannot be the model forever. It is good that NBFC crisis happened when it did before the NBFC sector became too large to have posed a real big systemic issue. It is good that this has happened, and people have woken up on their toes. They know that they need to garner more funds from various sources instead of only depending on banks.
As a result, the whole of the industry will mature. So, it is just not a question of getting a license and going to tier-2 and tier-3 cities and doing lending. It is much more than that and how it should be.
What are your thoughts on State Bank of India’s recent move to link savings deposit rates to repo rates?
It is a good move in the sense that it is much more transparent. So, you know the basis on which your rates are getting fixed. So, it is a much more transparent process. The reason why it was not being done in banks for so long is that when you link one side of balance sheet to market-determined rate, you have to link the other side of it just as well.
For a very long time, the bank deposits have been the de-facto social security measure that India has had. Most of the older generation, people who have pensioned off, they prefer to keep their money in banks because they don’t have the risk appetite of going into the markets. If they are going to keep money in banks, they need a stable income. If your deposit rates are going to fluctuate along with the markets, it is difficult for a householder to plan on how he is going to spend his money. Because from month to month he doesn’t know where the deposit rate will be and how much he is getting in his hands. That’s why SBI has done a good thing of introducing it but introducing it only for the portion which the householder doesn’t necessarily depend on.
For savings bank balances, you don’t need to keep too much there. You can always sweep it into a fixed deposit. The sweep is automatic. If you need more, the breakage of FD is also automatic. People don’t need to keep a lot of funds over there and therefore they find it safe to link that portion to the market rates. This is happening as something when any society or economy matures, and we are maturing. Therefore, the time has come for doing something of this nature. It is a right step in the right direction. We will have to see how it plays out in Indian context before we venture on this route.
Can you highlight for us that what one needs to watch out from public sector banks pocket as a threat or an opportunity?
You need to watch how they are coming along in technology journey and in capital gathering. If they are successful in these two counts, then they have a decent chance.
You need to watch out for mergers. From whatever this government has been saying and whatever steps they have taken, they have felt that it is important to consolidate the public sector undertakings. So, the mergers could be a challenge in the short term but in long term it will create stronger institutions as long as human resources side of it is addressed as well. That is another space that you need to watch.
The third is PSU reforms. As how well do they go and where do they actually lead to. That will give you flavour of how public sector units will perform in future.