Loans can’t be cheap always

Loans can’t be cheap always
The Economic Times, August 20, 2009, Page 5

STATE Bank of India chairman OP Bhatt spoke on the transformation of SBI at a seminar in the Indian School of Business. In an interview with ET, Mr Bhatt said the bank was open to acquisitions and would hire 11,000 employees this fiscal. He also hinted that home loans could become dearer in the coming years. Excerpts:

There is a perception that your customers may not gain in the long run from the special home loan packages. Besides, there are fears you could end up with more distressed assets.

We are the largest home loan providers and disbursements doubled between April to July this year compared to the same period last year. But there are no gimmicks in our special home loan packages. We look at the borrower’s income and ability to repay. It is incorrect to say this could lead to a situation similar to the US sub-prime mess. We are strict on due-diligence and have not relaxed the eligibility criteria. We have been vigilant in our appraisals as well.

Would you review the special home loan package that offers cheaper interest in the initial years?

Cheaper loans cannot continue indefinitely. But when the economy was in distress, we did our best to cut interest rate on home loans. For instance, in our “SBI My Home Campaign”, interest rate for the first year is 8%, and for the next two years is 8.5% to 9% depending on size of the loan. The stimulus package to boost home loans was to expire in June this year. But we had to look at those had not made up their minds and were undecided on their plots. We, therefore, extended the scheme till October.

Are you looking at re-structuring more loans?

We have restructured loans aggregating to around Rs 21,000 crore. Many were standard assets and some were non performing assets. We have not set any target for further loan re-structuring.

Will you look at raising more capital?

Our capital adequacy ratio is 14.25% inclusive of tier I capital of 9.38%. We have enough capital for our business growth and are certainly profitable. We need capital for other businesses such as insurance and rural operations. Funds may also be needed if we acquire a bank or for floating new companies.

Are you looking at any acquisitions now?

At the moment we are not looking at any acquisitions. But we are open to opportunities that come our way and want to have capital ready.

Do you plan a more aggressive expansion, especially since wider access for foreign banks has been put on hold now?

We are already opening 1000 branches every. We want to become far more efficient. But our growth has not been driven by the fear of a wider access by foreign banks here. Our own overseas operations grew by over 8%.

You have eaten into ICICI’s market share. What do you attribute the banks growth to?

The banks growth has been driven by its intrinsic strength; technology, product and services range; better quality of service, response time.

Have you set any target for growth in current and savings account deposits? What about hiring plans of SBI?

We will continue to maintain a CASA growth of 38%. We plan to hire 11,000 employees afresh this fiscal.

Has there been a change in the way you do your business after the global meltdown?

Within India, there has been no change expect that there is a slow-down. We therefore do not feel that one particular business is riskier than another. The only place where there is more stress is export-related units.

When do you see associate banks such as the State Bank of Indore merging with SBI?

The process is a fairly long one as some approvals are required from regulator and the government. Our intention is to merge the State Bank of Indore with SBI, though we are yet to hear from the government.

You were parking around Rs 65,000 crore with the RBI. Has it come down now?

The amount parked with the RBI has come down to Rs 20,000 crore partly due to the credit growth. Part of the money is also being redeployed for treasury operations including converting them into dollars.