Ownership-Agnostic Governance: Head of SBI

National Bank of India (SBI) President Dinesh Kumar Khara seeks to strengthen the operations of the country’s largest lender, while preparing it for the future. In an interview, he shares his assessment of the economic situation and the bank’s strategy. Excerpts:
What efforts are you making to increase foreign currency deposits? Do you expect large influxes and do you have options for rolling them out?
We increased FCNR (B) (foreign currency non-resident – bank) deposits even earlier. Recently, the RBI eased the rate cap and removed the cash reserve ratio and statutory liquidity ratio requirements, giving us leeway to deliver higher yields. We revised rates on July 10 and it is too early for trends. We will have to wait and watch as, globally, interest rates rise. We have been able to deploy them as loans and we are confident that we will be able to match the loan book to the deposits.
Will there be many takers for rupee billing settlement in the corporate sector?
More than companies, there should be a will on the part of exporters. If exporters are able to pay their dues in rupees, it is essentially the correspondent bank of the partner country which will have to open the Vostro account (which is opened here in a national bank on behalf of a foreign bank). It is a decision taken to internalize the currency and settle import requirements in terms of rupees and ease the pressure on hard currencies.
Which countries do you see coming on board? What about Russia?
This will work well with partner countries where there is no big gap in the trade balance. Exporters who maintain a surplus in rupees can use it to invest in domestic markets. In the case of Russia, when we open another bank’s Vostro account, it must not be used by sanctioned entities.
How do you see credit growth this year? Do you expect to grow faster than the industry?
Retail lending has been our engine of credit growth with a compound annual growth rate of 16% for three to four years. We foresee a similar trend in the future. Demand for personal credit is determined by revenue streams, and as long as there is revenue visibility, there is demand. We used to not see a lot of growth in the companies, but this quarter we’ve seen traction there as well and we should see similar traction from here. The systemic trend is that the loan portfolio grows faster than deposits. We should grow at least in line with the industry.
We have the feeling that companies are not investing… Will rate hikes curb demand?
Business credit demand will come from better capacity utilization and a recovery in working capital. We are now seeing capacity utilization at 75% and as this increases, demand for credit will increase. We are already seeing investment demand from sectors such as renewable energy and commercial real estate. In the core sector… there are already proposals under consideration in iron and steel. We have sanctioned limits for new airports and ports. While we have visibility into sanctions, withdrawals from these accounts will occur over time. Until last year, most companies opted to deleverage their balance sheets. This year we will have to wait and watch as we see outflows in terms of foreign portfolio investment and the overall pull from emerging markets is not that high. So this is a modified scenario in which companies will have to operate.
While lending rates have increased, deposit rates have not. Is excess liquidity preventing the transmission of interest rates to deposits?
The surplus has fallen sharply and, for certain tranches, deposit rates are rising. It depends on the asset-liability management of each bank. On the loans side, the loan portfolio is being re-evaluated at a faster rate. The impact of the benchmark change is related to higher interest rates for the bank, as the liabilities are revalued at the end of the contract. A significant portion of the deposits are in tranches of 2 to 4 years.
Will your interest margins compensate for mark-to-market losses due to the depreciation of government securities?
The RBI has already allowed banks to transfer securities into the held-to-maturity (HTM) portfolio. The readjustment, however, only takes place once a year. As space becomes available, investments are moved to the HTM category and we earn better income from the higher yields. From one trimester to the next, things can look bad. But seen over a year, things will be better. Last year we fully provisioned the collateral receipts we held for non-performing loans, so there will be no provisions there.
An article co-authored by former Niti Aayog vice president Arvind Panagariya and NCAER chief Poonam Gupta recommended the privatization of all public sector banks (PSB), except SBI. How do you see it?
The performance of a bank is independent of the ownership. We have seen accidents in private banks. To that extent, when it comes to governance challenges, PSOs are not seen as something unique. They probably viewed the bank in terms of public investors. We are a bank run by a board of directors, like other private banks. The government owns 56%, but 44% of the shares belong to the public and other investors. The level of effectiveness is provided by the management team.
We have the feeling that the PSBs are chained…
You have to see it from another angle. Private banks have the possibility of selective sorting. When it comes to the social obligations of PSBs, everyone talks about ESG (environmental, social and governance). It is unfortunate that the market does not recognize the social role played by PSBs as ESG. When the rest of the market learns about ESG, we have for years.
With HDFC merging with HDFC Bank, will you be able to maintain your lead as the largest home loan provider?
Competition makes us more agile. This ensures that we lose our fat and have to learn to move fast. We will not just watch. We have made our investments. We will maintain our leadership position. We created capacity everywhere by adding new central processing centers (CPCs). We are about to add 150 more CPCs this year. We will ensure that we are able to source well and process efficiently.

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