Rajnish Kumar is the fourth chairman of the State Bank of India (SBI). He joined SBI as a probationary officer in 1980. Kumar,59, has also served as managing director of the bank. He is considered as one of the most experienced person in the corporate banking and international banking divisions of SBI. In an exclusive interview to CNBC-TV18, Kumar said farm loan waiver is not a permanent solution but the authorities should take the necessary steps to boost investment in agriculture and it will help farmers.
Many times the farmers' income cannot support the debt because their income is low, he said.
"I would consider Rythu Bandhu as a better option as it is a much better way of assisting the farmers rather than loan waivers," Kumar added.
Rythu Bandhu or Farmers’ Investment Support Scheme is a welfare programme introduced by Telangana government to support farmer’s investment for two crops a year.
In a wide-ranging interview, Kumar also discussed the NBFC crisis and SBI's digital push, among a raft of other topics.
Watch the video here: Edited Excerpts: What are the highlights of the new digital SBI?
New digital SBI has many things. One is what we do at the backend in terms of data analytics and using the data. SBI is one of the richest banks to have huge database because we serve more than 420 million customers and we are very proud of this fact that almost every third Indian is dealing with State Bank of India.
We are very big in corporate banking, small business, agriculture and the power of data analytics is still to be unleashed and we are very systematically working on that and using the power of data analytics both, what we call internal and external, many products are now being designed.
Yono is a frontend mobile application where the customers can do anything related to banking as well as their investment, insurance, card, online shopping. Anyone who has used this application are very delighted. It is getting a lot of traction with the millennials.
How much have you all spent – if you can give us a cost benefit analysis, or can you us an idea of what is the expenditure and how much have you been able to draw?
Basically even for Yono which we are talking about, we have a separate profit and loss (P&L) account; whatever investment we are making is all accounted for and amortised and in terms of revenue generation or the cost saving, all is being accounted for.
All major projects we are trying to put in the philosophy of drawing a separate P&L; it is a notional P&L but in today’s time whatever we invest in technology that is all investment and it is not a cost.
What kind of benefits have you got? You do not have to open fresh branches, is that the advantage. Have you been able to close down some branches, is that the advantage or have you been able to pull out some staff from backend and put them as sales officers, frontend?
That is the main advantage, for example, savings bank account; before the Supreme Court judgement came we had opened 25,000-27,000 account daily on Yono. If those accounts were to be opened at the branches we would need at least 3,000 people. So that’s the advantage in many ways like whatever surplus staff is there they are available for sales, services, advisory.
As of now, we have not closed down any branches because we are moving in a big way in digital but the format of the branches is undergoing a change. They are much smaller and going forward, the presence has to be felt across the country. Therefore, the model which will be there is that the digital becomes the main platform but at the same time there are branches where people can go, get advisory handholding. So both will coexist.
So you will have much smaller branches?
Much smaller branches in format.
Generating. One is our overheads, so it will be reflected there that our overheads are very much under control.
Lesser use of air conditions and even tables and chairs?
Yes everything, all expenses go down.
Coming to the customer. Are the customers now able to get 3 minutes loan, 6 minutes loan or 15 minutes loan? Has your data mining reached that stage?
Yes. On Yono, we are sending the pop-up for preapproved personal loans and that is instantly available. Similarly loans against fixed deposits, so one doesn’t have to go to the branch either to open a fixed deposit or to get a loan. It can be done on digital platforms. In the same way, we are building journeys around home loan, car loan, education loan, salary loan. So as I said that the vision is that within two year time from now -- we have already spend 2 years and 2 years more -- it will be a complete bank. All the processes will be digitised and available on Yono.
Are you seeing a lot of your retail guys not coming to branch at all? Will you go to the extent of penalising them if they come to branch?
No, not at all. Our philosophy is that it is customer's convenience, whatever is their comfort.
Many of us would not have gone to a branch in a very long time because you can pay all your bills online.
Yes, everything is online but still the footfalls in SBI are very high because the customer segment that we serve is huge. There are a certain set of customer segments who will not come to the branch and will be using internet banking or mobile banking but there is a segment of customers who still come to the branches.
So, for a bank like SBI where we are catering to the customer segments from underprivileged to the richest, in that scenario, all are needed. There are many people who are not comfortable with mobile banking, not comfortable with even debit cards or ATM cards, so we have to take care of those people also.
What about cost savings in terms of any number, for instance, by the end of this year itself will you see it reflect in lower cost to income?
Say by March 2021. Our internal target is we should be able to bring it down to 40 percent but that is a bit ambitious but not entirely impossible and that will be driven by the revenue growth. There is a complete control over the costs plus digital.
Digitisation is not about Yono or front-end application, even all the bank processes are getting digitised, it is some sort of an omnichannel experience whether it is on mobile or portal or branch, the experience will be identical.
Do you see a time when you will not have to recruit or has it already come that you do not have to recruit a large level of force. You may still want high technical personnel or investment banking personnel but the lower level of personnel, lower skilled personnel, you do not need to recruit at all because you are redeploying?
First, whoever is coming they are highly skilled. Even if it is at a junior associate level, the qualifications are very good, they all are tech-savvy young pleasant people. However, every year the retirement is 12,000-13,000, so we cannot leave that gap.
Do you have to replace the entire 12,000?
Not entire but may be up to 75 percent as of now. So, that itself is lower cost to income and the new people who come their salaries are much lower than the retiring people, so that is one aspect. The other is that the number of people itself will go down but progressively. If we don't recruit then what happens is after 2-3 years there is a huge gap at the mid management level and that is what we saw when for 3-4 years there was a missing middle. So, that was a big mistake to completely stop the recruitment, that should never be done but the number of people to be recruited can depend on progress.
You must have seen that now famous Morgan Stanley report which expects that you are going to have a huge saving in terms of provisioning and as you just said in passing that loan growth also has picked up. There are three big factors in that case, loan growth has picked up.
We are now more than 14 percent.
So, at the upper end of your guidance and you have got provisioning perhaps which will trough out. At which quarter does it trough out?
It has already started to happen. Even when provisioning there are two things, one is minimum regulatory - what the regulator has prescribed but our approach has been going beyond that and a little bit upfronting of the provisions so that the current credit cost they don't get loaded forward on the future earnings.
So, that is the whole approach that as much as possible the future earnings should become less volatile because in today's time even if we show profits, the market is ready and everybody believes that we are passing through the challenging times but now we don't want to do that there should be any problem in future as far as banks earnings are concerned. Earnings should be steady and stable.
There are three factors that are going to help you - loan growth, your provisioning coming drastically down by the time you are mid FY20 perhaps and thirdly all these digital investments are going to start giving you cost advantages. So, even if you don't get to 40 percent cost to income by 2021, what would be a more realistic figure in FY20 - a good 5 percentage point fall or 4 percentage point fall?
45 to 46 percent is what we should be able to achieve by March 2020.
Loan growth is definitely picking up as you said 14 percent just now. Is a large part because you are buying up NBFC loans?
Not because of buying from NBFCs. The growth is coming more from the retail which is steady for the last couple of years and there is a demand particularly from the government entities. We are seeing a huge demand from those entities, they are large ticket loans.
So, PSU entities?
Yes PSU entities, all AAA or highly rated PSUs. So, it means that the government investment has picked up a lot as far as the infrastructure is concerned.
So, capex has started?
Yes capex driven by the government and this is normally what happens that first the capex cycle has to start with the government spending and later on the private sector spending.
Is this road and infrastructure types?
Everything, oil and gas, roads, power finance, railway finance, are all either infrastructure or related. In last 4-5 months we have extended quite a lot to these. Private capex is still lagging but it will follow.
The other important point I have to ask you is the farm loan waiver. Your predecessor has spoken that it hurts the credit culture. Would you worry that future farm loans will be a worry?
This is something where bankers will have to learn to live with. The fact is that this is not a permanent solution. It has not helped in the past, it will not help in the future. Many times the farmers' income cannot support the debt which they are taking because income is low. Then whether we focus on augmenting that income or we take the route of loan waivers? The better and preferable way will be boosting up the investment in agriculture and in what manner can we support the farmers to be productive.
In agriculture, productivity is so poor in India and then on top of it you burden the farmers with debt, so how do they pay even if they have the intention to pay. I would consider Rythu Bandhu to be a much better option than loan waivers. It does put a certain fiscal burden on the state but the Telangana model from bankers perspective or from whatever way you look at it, I think it is a much better way of assisting the farmers rather than loan waivers.
The farm loan waiver which has just been announced in Madhya Pradesh and Chhattisgarh are already bad loans and therefore for you, it is an advantage because it will get paid by the government, is that the way it will work? Or are they now standard loans which will become NPLs?
It is a short-term advantage because the NPA (nonperforming assets) gets paid. So, to that extent, you see a better NPA recovery but after that, the problem again starts and again then it goes up. So, agricultural NPA from 2010 onwards have gone up. So, the answer really lies in boosting the income.
There are two things in any credit whether it is agriculture, business or corporate, one is the intent to pay and second is the capability to pay. I would say that the common man’s intent to pay is much better in India, there is absolutely no doubt about it and we should not destroy it. The intent to pay should not be destroyed, the capability to pay and alignment of the debt servicing capability with their income that is where a permanent solution will be found.
I want to ask you about NBFC's real estate piece. The loans that you all are buying are more priority sector loans. Are you worrying that the large loans - builder loans or LAP loans given by NBFCs and HFCs may still be a problem?
I don't foresee a bigger problem. Most of the loans NBFCs have been able to rollover. Even today there is a new item that now they have started again lending. So, the situation which was prevailing about 2-3 months back, now the situation has improved considerably and it all depends upon the HFC or the NBFC, what is the quality of their portfolio with the builder. However, we have to also keep in mind the fact that in the last three years the offtake of the inventory as far as real estate is concerned was slow. So, builders were holding on. So, they may do some adjustment in the price and sell off quickly and then pay off their loans.
It can always happen.
Do you think that maybe one or two small Amrapali's can happen?