Banker of the Year 2004

 

Banker to the Nation

 

The State Bank of India has a balance-sheet size of over Rs. 4,00,000 crore and is easily one of Asia's most influential banks. Its chairman, A. K. Purwar, Business Barons' Banker of the Year 2004, is a talented and eclectic man who wields his bank's power with a light but sure hand. Principal Correspondent of Business Barons Jai Shankara met the country's foremost banker at his south Mumbai headquarters for an exclusive interview.

 

 

 

ARUN KUMAR PURWAR comes across as a genial, soft-spoken and unassuming man. But there are other facets to him as well and it is these that have catapulted him to the foremost rank of Indian bankers. The chairman and managing director of India's largest bank, the State Bank of India (SBI), since November 2002, Mr. Purwar has proved to be one of the most influential bankers in the country with a sure grasp over India's complex financial and banking industry issues.

 

His stint at the top at the State Bank of India has been marked by a series of upsides. Under Mr. Purwar's stewardship, the public sector bank has undergone a sharp facelift, improving its performance across all crucial parameters and covering considerable distance in its journey to becoming a world-class banking and financial services powerhouse. Strong growth in its profit after tax (PAT) coupled with several initiatives in retail and foreign business operations, a consistent enhancement in customer ­service levels and a well ­strategised and outstandingly­ executed NPA reduction plan over the last two years have placed SBI firmly on a high-­growth trajectory.

 

Dynamic and experienced (Mr. Purwar joined SBI in 1968 after a stint as a lecturer in Allahabad University), one of Mr. Purwar's greatest successes lies in enthusing his staff to continuously sharpen their skill-sets to meet the requirements of the rapidly-evolving and intensely-competitive market environment. Computerisation of all of the bank's branches and implementation of a core banking solution (presently in process) are the two other feathers in his cap.

 

Rising up from the ranks, Mr. Purwar (who has held several important positions covering the whole gamut of commercial banking operations during his three-and-a-half decade career) was earlier managing director of State Bank of Patiala where he distinguished himself by integrating the bank's treasury operations, computerizing all its branches and for product innovation. His three-year inning (September 1995 to June 1998) as CEO of the Tokyo branch of SBI was also studded with achievements; Mr. Purwar structured large profitable deals with KEXIM of South Korea besides arranging syndication of foreign currency loans.

 

The late-1990s and early-2000s saw this sports-loving banker in his element; as the State Bank of India forayed into other financial service businesses, Mr. Purwar essayed a stellar role in co-ordinating the work for the bank's entry into insurance, now one of the SBI group's rapidly ­expanding and high-earning businesses. Mr. Purwar, whose interests are eclectic and cover a wide range of subjects such as business, banking, finance, fiction and management, also takes a keen interest in issues affecting the banking industry and is a member of various committees concerned with Indian banking and finance, trade, industry and commerce and banking technology.

 

Apart from reading which he professes in his first love and for which he confesses his extensive work permits him little time nowadays, Mr. Purwar is also an avid cricket and badminton buff. Always eager to broaden his mental horizons, Mr. Purwar has travelled extensively, both within India and abroad.

 

 

SBI  GROUP  :  SURE  AND  STEADY  GROWTH
(Rs in Crores)
	Year Ended Mar.2003	Year Ended Mar.2004
Interest Earned	41,027.50	41,356.06
Other Income	8,227.04	11,128.10
Total Income	49,254.54	52,484.16
Total Expenditure	37,918.15	37,916.23
Operating Profit	11,336.39	14,567.93
Net Profit	4,199.01	5,531.10
Capital Adequacy Ratio (%)	14.03	14.43
Earning Per Share	79.78	105.09

 

GEOGRAPHICAL DIVISION OF REVENUE
						(Rs. IN CRORE)
	Domestic Operations			Foreign Operations		Total
	Year Ended			Year Ended		Year Ended
Particulars	31.03.2004		31.03.2003	31.03.2004	31.03.2003	31.03.2004	31.03.2003
REVENUE	36,861.10		35,484.31	1,050.52	1,205.75	37,911.62	36,690.06
ASSETS	3,84,033.65		3,53,362.32	23,781.63	22,514.18	4,07,815.28	3,75,876.50

 

 

 

 

Interview :  A.K.Purwar, Chairman of State Bank of India

 

 

In this exclusive interview with Principal Correspondent Jai Shankara of Business Barons, Mr. Purwar, who also holds the chairman's posts in SBI's seven associate banks and its several subsidiaries, and is BUSINESS BARONS' Banker of the Year 2004, comments extensively on the current state of the Indian banking industry which he describes as growth ­oriented, besides elaborating on his future plans for SBI which he asserts will be among the world's top 50 banks within the next three-to-five years. Excerpts:

 

 

 

 What is your assessment of the prevailing environment in the Indian banking industry in terms of sectoral growth and performance of banks in general with particular emphasis on revenue, profitability and global competitiveness?

 

A. K. PURWAR: The Indian banking industry has evolved substantially in the last three years contributing to a sound financial system in the country. The banks have registered improved growth in all aspects of operation and given the economic environment favouring growth, the future outlook also appears bright. Several positive developments have occurred during the last three years, prime among them being the enhancement of asset quality in Indian banking, overall technological upgradation, implementation of core banking systems by many banks, introduction of ROTS by the RBI which facilitates transfer of funds in electronic form, etc.

 

While the scenario of declining trend in the interest rates also provided banks with a good opportunity to book treasury profits, there was no appreciable rise on the operating income side with incomes remaining flat. Indian banks will therefore have to focus strongly on reducing transaction costs, in order to increase revenues. In my opinion, this aspect needs to be addressed on a priority basis by Indian banks.

 

As regards global competitiveness, I have no doubt in my mind that Indian banks are as good as their international peers. On most parameters Indian banks have now attained world-class standards.

 

 How have PSU banks performed in FY 04? How is the future outlook in the era of intense competition and new­-generation high-tech foreign banks and foreign majors?

 

PURWAR: The public sector banks have set their priorities in the right direction by focusing on enhancing asset quality, strengthening the technology platforms and in improving their operational efficiencies. Several innovative products and services, some that are technology driven, have been introduced targeting different customer segments. These efforts have resulted in almost all of these banks reporting a healthy growth for the financial year 2003-04 with NPA levels having been brought down to manageable levels.

 

It is true that the emergence of new private sector banks and foreign banks has enhanced the degree of competition substantially but I do not believe this to be the major worry. It is the high transaction costs that these banks must address and ensure bringing it down immediately.

 

I also feel there is an urgent need for consolidation. Presently a large number of small sized banks operate in the market and these do not have the critical mass required to compete effectively in the present environment. They also do not possess adequate revenue streams. The consolidation within the banking industry will thus bestow upon them the size and critical mass required for effective and profitable business operations and also enable them to embark upon the expansion and technology up gradations to beat the intense competition.

 

As the Indian banking industry evolve and gets more integrated with the global economy, only the big and efficient PSUs which have invested in technology, improved business process and progressive HR will be able to face the competition and fare well in the market place.

 

 Could you enumerate the factors that you feel impart the PSU banks with an edge in the marketplace vis-a-vis their peers in the private sector? What is the market share of each presently?

 

PURWAR: The trust reposed by the public in public sector banks is the most important factor - this catapults us to an exalted category. Public sector banks have a large branch network reaching into even the remotest area of our huge country. Speaking about State Bank Group, we are today the largest bank in the country with over 13,000 fully computerised branches and 3,800 plus ATMs. Foreign and private sector banks cannot match this kind of network and reach. The market share of public sector banks even today is quite substantial despite the strong competition from private and foreign banks.

 

 In which areas do you feel that Indian banks have to improve their functioning in order to be on par with their international peers?

 

PURWAR: Indian banks have to focus on further enhancing their assets quality, reducing transaction costs as I had said earlier and improving customer service. 011 the IT front too, there is still a long way to go. We are on par with our international peers on most of the crucial parameters and in the remaining areas we are fast reaching there. I am happy to state that Indian banks are moving rapidly in the right direction.

 

 How is the Indian banking sector placed on the IT front?

 

PURWAR: Indian banks have got increasingly tech-savvy in the last two years. Several public sector banks have installed state-of-the-art technological platforms and online banking is expected to gather momentum in the next two-three year period. However, one must remember that technology is constantly evolving and banks need to upgrade and keep abreast of the latest developments, as otherwise obsolescence will phase out the bank from the marketplace. Banks also need to earmark adequate funds for investment in IT. This is a critical sector and hence must be accorded priority attention.

 

 One criticism levelled against the Indian banking sector, especially public sector banks, is the high level of non-­performing assets (NPAs). What reasons do you assign for this malady and what measures do you suggest to reduce them?

 

PURWAR: It is true that the Indian banking system was saddled with a high percentage of non-performing assets but in the last three years and, especially in the last year, vigorous steps have been taken by all banks to bring NPAs within manageable limits. Today I am happy to say that NPAs are at an all-time low in the Indian banking industry.

 

Here an important point that needs highlighting is that the accretion of NPAs in the Indian banking system is not a recent phenomenon nor did it happen overnight. It happened over a period of time and for various reasons, some of which are historical. For example, recovery procedures took a very long time, legal formalities proved cumbersome while institutions like the BIFR could not formulate a rehabilitation package in a time­-bound manner in most of the cases. All this contributed to the formation of NPAs. However, this problem is now receiving focussed attention and Indian banks have achieved considerable success in controlling NPAs.

 

 What measures did the Indian banks implement to reduce NPAs?

 

PURWAR: Debt Recovery Tribunals (DRTs) set up in the last few years have successfully disposed off several pending cases. The Corporate Debt Recovery (CDR) mechanism has also worked well­nearly Rs. 55,000 crore worth of assets have been restructured under this mechanism. This has been through a judicious mix of interest waivers, rescheduling of dues and upgradation of assets. The Securitisation Act passed by the parliament has made the defaulters come forward for settling their dues. Asset reconstruction companies being set up by banks are another powerful tool in assisting banks in reduction of NPAs.

 

 How do you see interest rates moving this fiscal? Do you feel rates have plateaued? How strong is the possibility of a northward movement, albeit slowly, later this fiscal?

 

PURWAR: Globally, interest rates are beginning to harden. In India, in the short run, I expect the rates to remain stable while in the medium to long term, chances of a creeping increase cannot be ruled out.

 

 Another area of contention is the priority sector where the lending limit as prescribed by the Reserve Bank of India stands at 40 per cent. There is a feeling that this limit is on the higher side. In the present era of intense competition and economic liberalisation, do you feel this limit of 40 per cent should be reduced?

 

PURWAR: I am comfortable with the 40 per cent priority sector lending limit. There is a rapidly growing professional class which, if the banks tap in a systematic manner, will provide rich dividends. Secondly, the services sector is growing healthily at 8 to 9 per cent per annum ­this is a highly profitable revenue stream which is just waiting to be tapped.

 

The small scale industries segment is another high-potential one, though, incidences of sickness is higher in this sector due to intense competition in the marketplace and technological backwardness. Once this segment focuses on quality enhancement and upgradation of technology, then this segment too will prove to be an attractive revenue-stream for banks. Financing of ancillary units has picked up considerably in the last three years. Generally speaking, I don't think banks should have any problem with the 40 per cent priority sector lending limit.

 

 Internationally, several mergers and acquisitions (M&As) have occurred in the banking industry, leading to consolidation and building up of strong conglomerates. In India, though a few M&As have taken place involving small banks, this trend does not seem to have gathered momentum. What are the reasons for this and do you see big banks taking this route in the near future?

 

PURWAR: I agree that this trend has not yet picked up momentum in India but the acquisition of Bank of Madura by ICICI Bank and HSBC picking up an equity stake in UTI Bank are all pointers to the future. As stated earlier size is extremely crucial in today's prevailing climate of intense competition. Banks must possess critical business mass as only then can they undertake technological upgradation and modernisation of a global order so essential to fare well in today's business environment. Consolidation in the Indian banking industry is bound to occur sooner than later, say perhaps, in the next couple of years.

 

 Coming to State Bank of India (SBI), how do you assess the performance of the bank in FY 04? How was growth as compared to FY 03?

 

PURWAR: In the present challenging business environment, our bank has indeed performed well. Our operating income grew by Rs.3,081 crore (19.60 per cent) from Rs. 15,717.80 crore to Rs. 18,798.77 crore in FY. 04. The operating profit grew by 22.87 per cent from Rs. 7,775.40 to Rs. 9,553.46. Our net profit has grown by 18.55 per cent to Rs. 3,681 crore. Our foreign offices, currently 54 in 28 countries, have been able to register a growth of 42.34 per cent to US$ 678 million in FY 04 (over FY 03) in balance sheet size with over 46 per cent growth in net profits. Our performance across various critical parameters has been healthy. We have set our benchmarks in key parameters against not just the best banks in emerging markets but also the best international banks.

 

 What, according to you, were the highlights of the bank's performance in FY 04?

 

PURWAR: One of the important achievements in FY04 was in the realm of technology. We have successfully computerised not just the 9,037 branches of SBI but also 4,566 branches of our associates. We have also set up more than 3,800 ATMs in over 1,200 centres and our card base is one of the largest in the country at 5.7 million. We have introduced single window services in over 7,400 branches of the bank and 9,000 branches of the Group. This has enhanced the customer services at all these branches. The platform for implementation of core banking solutions is also well set both in our domestic and overseas offices.

 

FY 04 has been marked by our high performance in areas of loan growth, international business and in leveraging of our group synergies. The personal segment registered a growth in advances of over 36 per cent, including 40 per cent growth in housing loans and 57 per cent in educational loans and 51 per cent in car loans. Agriculture recorded 11 per cent growth and infrastructure is another area where our bank has recorded high growth. Our motto has been "Follow the Indians and Follow the Indian Trade" and we have therefore opened branches in Chittagong in Bangladesh, Capetown and Port Elizabeth in South Africa, and Fresno and Canoga Park in California.

 

Another important highlight of our performance is the steep reduction achieved in our NPAs - from 4.5 per cent in FY 03 to 3.48 per cent in FY 04 despite the 90 days norm, Dabhol and SBI Home Finance. I am happy to say that we have considerably improved our assets quality. We also focused strongly on reducing our transaction costs.

 

Innovation in products and delivery channels has been the hallmark of SBI this year. Our set up of ATMs like floating ATMs, Drive-in ATMs and ATMs at Public Transport Terminus has been a hallmark. We have introduced products to suit customers across all segments.

 

Our group's other businesses such as mutual funds, factoring, insurance, credit cards, etc. also fared well, contributing healthily to our total revenues. All in all, I am happy with our performance although I believe that we can do still better. A strong platform has been built for future growth and SBI is progressing rapidly on track.

 

 What are the thrust areas for State Bank of India presently? Will these remain the same or are you contemplating a change in focus?

 

PURWAR: After computerisation of our branches and up gradation of our technological platform, we now possess the capacity to handle large volumes of business. Accordingly, we will focus strongly on all high-potential revenue streams. The services and healthcare sectors will comprise prime focus areas for us as more than 50 per cent of India's GDP emanates from the services sector alone. Our strategy here is to offer loans to doctors and other medical practitioners for financing nursing homes, small dispensaries, medical equipment, etc.

 

Similarly, we have identified the farming sector as one offering good opportunity. Our strategy here is to offer housing loans to farmers besides offering products for agricultural equipment. We also offer loans to teachers, students, etc. in the higher education segment; in fact, we have financed 90,000 teachers to the tune of nearly Rs.900 crore. We also see vast potential in the infrastructure sector in the next year.

 

SBI has a presence in every area of the financial sector - in insurance, investment banking, credit cards, mutual funds, factoring and the seven associate banks. The operating profit of the group in FY 04 at Rs. 14,567.93 crore registered a 28.5 per cent increase. Indeed, SBI group performance in FY 04 has been path­setting with the net profits of the group crossing the US$ 1 billion mark (Rs. 5,531 crore). Leveraging our group synergies will enable SBI to compound its growth in the years ahead.

 

 Could you elaborate on your retail banking initiatives? How much does this business contribute to your total revenues?

 

PURWAR: Retail banking will comprise one of our core business segments. We have defined retail banking as anything which is non-corporate in character. Besides, it is presently the fastest-growing and most profitable of our businesses. Here we have already launched several schemes in housing, auto and personal loans which have met with a tremendous response in the marketplace.

 

The personal banking business has registered a phenomenal 36 per cent per annum increase in the last two years and the next two years hold immense potential. I expect a growth rate of over 30 per cent per annum over the next two years. Currently, personal banking contributes 20 per cent to our total assets. We hope to see an increased contribution of this segment. This has proved to be the most profitable and fastest­ growing business for us.

 

 What are your future plans in retail banking? How much will this business contribute to the bank's total revenues this fiscal?

 

PURWAR: Our strategy this fiscal will be to fine-tune our retail banking products, especially our housing loan products. We have tailor-made products targeted at specific segments such as Prashasan Plus for government and PSU employees, Police Plus for policemen who want to purchase homes, bikes, etc., and Nurses Plus for nurses and medical personnel for education purposes or for going abroad, etc. The last-named has elicited a tremendous response and will constitute a prime focus area for us this year.

 

We also have a product tailored specifically for the dairy industry. Another product, Shoppe Plus for financing shop construction and purchase, has also met with an encouraging response in the marketplace.

 

 How have the State Bank of India's corporate banking initiatives fared? How much does this business contribute to your total revenues presently and how much will this increase to this fiscal (FY 05)?

 

PURWAR: We have primarily focused on providing finance to the infrastructural and power sectors. We also provided finance to a few non-infrastructural areas. However, this was not a high profit-earning segment for us in the last three years. The main reason was that many corporates were not investing in capital expenditure but instead were ploughing back their funds into their businesses. Besides, dependence on banks for funds have considerably reduced with many alternative channels now available for raising funds.

 

But now, with the economy having turned around, many corporates are undertaking expansion and modernisation. I expect a healthy growth in this segment this fiscal and corporate banking should contribute around 16 per cent to our total revenues this fiscal.

 

 Please tell us about some of the bank's prominent initiatives in the corporate banking segment.

 

PURWAR: Our strategy here is to provide comprehensive services to our customers and not just to cater to the working capital requirements of corporates. We are in the midst of fine-tuning plans in the realm of channel and vendor-financing. We will soon be upgrading our cash management products while our core banking solution will be implemented in 42 branches in the first phase. This will be extended to 300 branches by September 2004.

 

 How has State Bank of India fared on the priority sector lending front?

 

PURWAR: Currently, our priority sector lending stands at 38.69 per cent. We possess a 98 per cent recovery success rate in SHGs.

 

 Which comprise your thrust areas under the priority sector?

 

PURWAR: The agriculture and services sectors will comprise our thrust areas. We have planned big initiatives in tractor financing and have already tied up with six manufacturers. We will also provide financing to dairies, milch cattle and construction of cattle-sheds, etc. Another high-potential area we have identified is contract farming where we finance self-help groups. One of our greatest achievements in priority sector lending is our financing of 1,77,076 self-help groups to the tune of Rs. 624.59 crore and we intend to scale it up still further this fiscal. By 2008, our target is to finance over one million such groups all over the country.

 

 How many branches does the State Bank of India have presently? Are there plans to augment them this year? If yes, how many more branches do you propose to add this fiscal?

 

PURWAR: Presently, the State Bank of India alone has 9,037 branches while if one includes the entire group, then our branch network strength is 13,636. We are the only institution in the country which is present in all the segments of the financial sector.

 

 What is the bank's NPA level presently? What measures have you taken to reduce them?

 

PURWAR: Over the last two years, we have initiated rigorous recovery measures and as a result of these measures, our NPA level today has been brought down to just 3.48 per cent. Some of these measures include implementation of restructuring and rehabilitation packages, expeditious follow-up of legal cases and writing off of some debts. We have also adopted the one-time settlement route with some of our customers. Here I am happy to inform you that three of our group banks have reached the zero NPA level in FY 04.

 

 How is the bank placed on the technology front? What was your investment in IT in the last three years and how much has been earmarked for IT over the next three-year period?

 

PURWAR: Last year, the entire SBI group's investment outlay on IT amounted to nearly Rs. 1,000 crore of which SBI alone accounted for Rs. 500 crore. The major component of this investment is directed at implementing our core banking solution which I consider as very crucial in our evolution as a high-tech bank. We are also investing substantially in upgrading technology in our overseas branches Infosys is implementing the packages there. I have no doubt that State Bank of India is one of the most IT-savvy of banks in the country and within a year at most, we will be on par with our international peers on this crucial parameter.

 

 How many ATMs does State Bank of India have in operation presently and how many more will be added this fiscal?

 

PURWAR: Currently, we have 4,029 ATMs and we propose to add another 2,000 this fiscal. By FY 05, out ATM network will be nearly 6,000 strong.

 

 Are there any new services or products you propose to launch over the next three months? If yes, please provide details.

 

PURWAR: In the next few months, we will be launching several value-added and next-generation services such as fee collection of students, payment of life insurance premiums, payment of credit cards, etc. through our ATM network. Our strategy is to garner market-share through such niche, convenience and value-added services.

 

 What is your bank's staff strength presently? Do you feel that the bank is still over-staffed and there is a need for further right-sizing? If yes, is a VRS programme on the anvil?

 

PURWAR: Our staff strength presently is over 2,00,000 and we have no plans for a VRS. As I mentioned before, our thrust right now is on retail banking where, because of the very nature of the business, we will be requiring more hands. Our strategy for growth is to optimally utilise ours distribution network for our group's products such as mutual funds, life insurance schemes, credit cards, etc. Our aim now is to effectively leverage our distribution network.

 

We are also currently in the midst of implementing our core banking solution, and reviewing and re-energising our business processes. This will take at least another 18 months to be completed and hence we will review our HR policies only after the completion of these ongoing activities.

 

 Please elaborate on State Bank of India's global banking initiatives. How much does your international banking business contribute to your total revenues?

 

PURWAR: State Bank of India has several foreign subsidiaries and has 54 offices across 28 countries. In April, we entered the Russian and Australian markets while just recently in May, we started our operations in Oman. Our plan is to expand our footprint to 36 more countries by FY 05. Currently, our foreign operation contributes only a small percentage (4 per cent) to our total revenues; we plan to increase its contribution to 20 per cent by FY 08. Our strategy in this segment presently comprises catering to the needs of the Indian population residing abroad, NRI deposits and India's foreign trade requirements.

 

 What is the business-mix of your overseas branches?

 

PURWAR: It consists mainly of India-related and NRI businesses. However, in recent years, we have started catering to local clientele as well. For example, in Canada, we have started giving housing loans while in Los Angeles, we have entered the retail banking segment by financing doctors, etc. We have country-specific strategies for our foreign operations.

 

 What are your future plans in international banking?

 

PURWAR: Currently, State Bank of India ranks amongst the top 100 banks globally; 'it holds the 98th spot. But given our plans and the rapid pace at which we are progressing, I am confident that in the next three years, SBI will rank amongst the top 50 international banks. We at the bank are all working to transform SBI from a domestic major into a world-class institution, meeting and even surpassing all parameters a world-class bank is supposed to have, especially in terms of capital adequacy ratio, transaction costs, customer-service level, products and services portfolio and other global benchmarks.

 

 Finally, what is your vision for State Bank of India over the next five years in terms of global competitiveness, corporate image, revenue and profitability, customer-service levels, products and services, PAT, etc.? What do you consider as the USPs of your bank which give it an edge over its competitors in the marketplace?

 

PURWAR: State Bank of India's greatest USP is its unquestionably large presence in Indian society; we are present in every nook and comer of the country. We inspire huge trust in the people who feel that their money is safest with us. Secondly, our human resources constitute one of our biggest strengths. In terms of skill-sets, we are second to none. Let me give you just one example - SBI successfully computerised 8,000 branches within nine months. This works out to 40 branches per day which clearly reveals our immense capabilities ­no other institution can match our achievements.

 

But while we have fared well in the past, the real challenge now lies before us. We have successfully bridged the gap between manual working to a computerised environment; now we have to jump onto the core banking solution platform. We intend to re-skill our personnel to make them capable of delivering the maximum in the new environment.

 

As an integrated and well-diversified banking and financial services group, State Bank of India is today the largest bank in Asia. We have a presence in life insurance, mutual funds, factoring and credit cards, etc. In fact, we are the fastest-growing credit cards company in the country.

 

With such inherent strengths, I am confident State Bank of India will easily cover the next few steps needed to transform it into a world-class and highly­ profitable banking and financial services giant.