[sbinews] Chairman Sri. A.K. Purwar's Interview in Financial Express

  • From: "Rajendra S. Pai" <rspai9@xxxxxxxxx>
  • To: sbinews@xxxxxxxxxxxxx
  • Date: Sun, 30 May 2004 20:27:36 -0700 (PDT)

?No Compromise On Quick Credit Delivery Now?  
(Financial Express) 

He has made the State Bank of India (SBI) Group, a
member of the $1 billion club. Under his chairmanship,
SBI has increased its net profit by 19 per cent to Rs
3,681 crore during 2003-04. But the chairman of SBI,
AK Purwar is not complacent. He admits that quick
credit delivery is still the greatest challenge for
the bank. But he is ready to accept the challenges and
convert SBI from the status of India?s biggest
commercial bank to a global bank. Mr Purwar spoke at
length to FE?s Sumanta Ray Chaudhuri on the future
plans of SBI as well as how he views the future of the
Indian banking industry. Excerpts: 

*****Despite having a 19 per cent growth in net profit
during the fiscal gone by, there has been decline in
the rate of growth, which was 20 per cent in 2002-03.
Don?t you think that this is a black mark?

Not really. This 19 per cent growth in net profit was
achieved despite a lot of challenges. Take for
example, SBI Home Finance Ltd and the massive
provisioning that SBI had to make for it during
2003-04. Again, the 90-day norm on non-performing
assets (NPAs) has forced us to make a much higher
provisioning on this account. 

Our staff expenses has also increased by over 13 per
cent following additional contribution to the pension
fund and provision for leave-encashment liability for
the current year. I admit that all these difficulties
are parts of running a giant organisation called SBI.
But facing all these challenges, achieving a 19 per
cent growth is no joke. 

*****But why did you then declare a higher dividend of
110 per cent against 85 per cent earlier? One presumes
that you had to take special permission from Reserve
Bank of India to declare this dividend since still now
your net NPA is above three per cent.

This was purely a goodwill gesture towards our
shareholders. As I said, the SBI Group?s net profit
has crossed the $1 billion mark and the management
decided to share the pie of success with the bank?s
shareholders. So we declared a 100 per cent regular
dividend and 10 per cent special dividend for our
shareholders. I believe that in the long term, this
decision will help the bank is retaining investors?
confidence. My vision is to convert SBI into truly a
global institution in the near future in terms of
customer service, investors? confidence and

****What do you think will be your greatest challenge
in achieving that?

Credit delivery and credit quality are two foremost
challenges, that we will need to address. I have no
hesitation to admit that SBI needs to drastically
increase the pace of credit sanction and credit

Of course, we have taken some steps in decentralising
our operations, with greater functional autonomy to
the circle credit committees. 

We have also undertaken a business
process-reengineering programme and engaged McKinsey &
Co as advisor of the project. McKinsey has started
giving its reports in parts and SBI has started
implementing its advises in departments like national
banking group, corporate banking, medium & small
enterprises advance section and other mortgage loan

The aim is to minimise the time-gap between
application, sanction and disbursement. Similarly,
getting good quality loan proposals will be another
challenge for us. And this is applicable not only for
SBI, but also the seven associate banks. 

****How far is the NPA fear psychosis responsible in
this unnecessary delay in credit sanction and credit

You are absolutely right. This fear psychosis has been
a major reason for this delay. The Indian Banks?
Association (IBA) in its recent report, has said that
banking services should be absolutely brought out of
the ambit of Central Vigilance Commission. IBA is
absolutely right in its demand that banks should have
their own checks and balances. 

Many a times, a sincere and honest officer has been
hauled by CVC because a loan sanctioned by him has
become a NPA. Now such instances often make others
feel shaky and they become over-cautious while
processing a loan application. Already, bank officers
upto a certain scale, have been brought out of the CVC
ambit. But that is not enough and the entire industry
should be brought out of that. 

****Is there any possibility of merging the seven
associates of SBI with the parent bank?

Such a merger is not at all necessary and the seven
associate banks will continue to operate as
independent entities. But we have synergised much of
their operations. First of all, both SBI and its seven
associates are on the same technology platform. The
business process reengineering programme is applicable
for all of them. Both SBI and the associates are
cross-selling products of SBI Life Insurance Company
Ltd and SBI Funds Management Pvt Ltd. With so much of
synergy, a merger of associates with SBI is not

****What kind of credit offtake do you expect during
2004-05, especially in terms of industrial credit?

Industrial credit, especially project financing is
going through a very good phase these days. During
2003-04, the average growth in project financing has
been to the tune of around 16 per cent and the growth
is expected to be somewhat during 2004-05 during the
current fiscal. 

Sectors like infrastructure and steel industry are
projected for going through a healthy growth track
during the current fiscal and hence, lending to these
sectors is expected to receive a major boost. 

Infrastructure lending has grown at the rate of 53 per
cent during 2003-04 and a similar healthy growth is
expected during 2004-05 as well. The services and SSI
sectors are also expected to make major contributions
in improving the credit offtake. 

****How is SBI expected to gain out it?

We have projected a 15 per cent growth in overall
advances during 2004-05. With the growth in industrial
credit, our bank is expected to be on par with the
industry. Agricultural credit is expected to grow at
the rate of seven per cent and retail credit, at the
rate of 36 per cent. In retail credit, housing
finance, automobile finance and mortgage loans will be
the main contributors. 

As of the investment part, SBI will continue with its
focus on treasury operations, especially trading in
Government of India securities. I also expect our
foreign exchange operations to contribute
substantially in achieving a healthy profitability
figure by the end of the current fiscal. 

****What is your target for NPA for 2004-05?

My target is to bring down the net-NPA figure, as
percentage of total advances to below two per cent by
the end of 2004-05. Similarly, we are inducting
technology in a bigger way to bring down the
transaction cost. 

Currently, SBI?s transaction cost is 1.8 per cent and
my target is to bring it down to below one per cent
within a couple of years. 

****What are your plans regarding SBI Mutual Fund? It
seems that you are not very aggressive with this 

Look, SBI Mutual Fund in itself, is a strong mutual
fund. But you are right that we are not very
aggressive about it. In fact, we are scouting for
partners to run SBI Mutual Fund as a joint venture
entity. We are holding talks with a couple of parties
and we expect to finalise with one of them very soon. 

****Do you feel that the falling interest rate regime
is coming to an end and do you expect the rate to take
an upward movement now?

The overall economic situation projects that the
interest rate will remain stable for the medium term.
The inflation rate is also within the manageable limit
and the overall situation does not justify further cut
in the interest rate. As of whether there will be any
rise in the interest rate or not, I personally feel
that a rise cannot be ruled out, but it will not
happen immediately. 

****Despite Prime Minister Dr Manmohan Singh?s
assurance that state-run banks can go ahead with
public offering plans provided the government stake in
these banks remain over 51 per cent, there is a
constant pressure on banks and the government by the
Unions and the Left Parties for halting further
dilution of government stake. Do you feel that such
kind of pressure will force many banks to shelve their
fresh public offering plans?

I really do not think so. Of course such pressures are
not desirable but I feel that individual banks will
continue with their fresh public offering plans,
according to their own requirements and such pressures
will not impact their decisions. 

?Credit delivery and credit quality are two foremost
challenges, that we will need to address. I have no
hesitation to admit that SBI needs to drastically
increase the pace of credit sanction and credit
disbursement. Of course, we have taken some steps in
decentralising our operations, with greater functional
autonomy to the circle credit committees? 
AK Purwar 
Chairman, SBI 

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