So, would you like to benefit from some banks vacating the corporate banking space?
At least, it opens up the possibilities of growth, even in a market which is not very encouraging. You can have a strategy to grow the corporate book, even if the overall growth rate is not too big.
But what about the pricing power and underwriting standards; both are segments where public sector banks (PSBs) are supposed to be a little weak?
Pricing power doesn’t mean that you are getting more than what others are getting simply by taking all the risk. If a loan has to be underwritten in a sustainable manner, it must be priced right. Where the market becomes too hot, which always happens, then a mispricing of risk happens. We have seen the phase where banks may not have earned money from certain sectors, but they have lost a lot of money there. So, when we look at any business, we need to be more calculated and nuanced and take a customer or business-house based approach. We are again at a point where scale is coming back and there is consolidation happening. I agree with you that the kind of emphasis that PSBs have placed on risk management as a discipline has been relatively weak. The kind of sophistication and quality of resources that banks need to commit for underwriting, we may not have done so in the past as PSBs. That’s something which needs to be strengthened.
How important is pool purchases for the bank with regard to the retail segment?
I think retail growth is a bit understated to the extent that some of the pool buy-outs did not happen last quarter. There were some issues which have been resolved recently. So, if you look at home loan growth at 10 per cent, it looks lower compared to the last quarter. But the previous quarter was helped by pool purchases, which didn’t happen in Q3. So, in terms of retail growth, it is more a question of focusing on where the growth is possible. To my understanding, most of the growth has happened from car and personal loans which are organic. We have lent to people with whom we already have a relationship. While there may have been some focus on the amalgamation process, I think the bank has been able to capitalise on opportunities wherever they existed.
But yet, on the whole, the pace of growth isn’t very encouraging…
About 12 months back, we were looking at macro-economics growth rate which was substantially faster. Credit growth for the system was anticipated to be of a higher order. The situation today is different from what it was anticipated to be. But as the bank consolidates its corporate book and as we talk, the competitive landscape seems to have been altered to the benefit of corporate lending. Even if the growth rate takes some time to pick up, it should still be possible to achieve significant growth level. In the immediate short-term, there are still some challenges. So, regardless of what we do, there are limitations on growth.
At over 13 per cent capital adequacy, what are your plans on this front now?
The bank is reasonably well capitalised. In terms of what we can foresee today in terms of growth, and with the possibility of improved quality of book and conceivably lower credit cost, internal generation should be able to supplement capital. So, we may not have to access the market in the near-future. But in case there is a need to access capital markets because the growth rates are higher than what we anticipate, the possibility of going to the market and not to the government is something that makes sense.
What is your thought process in building the subsidiaries of the bank?
There is a strong case for creating more value in the subsidiaries. One of the big advantages of having a retail franchise is that we leverage it to create value in terms of cross-selling. Asset monetisation is possibly way off because we have to first create value, but we could look at partnerships for some of our subsidiaries. Currently, SBI (State Bank) has kept its credit cards business outside the bank which allows it to have a partner for the business. BoB also had the cards business outside the bank. But given the traction for business isn’t great, we have to evaluate whether to have it outside the bank or have a partner and keep it inside the bank. If the businesses reside outside the bank, it does make sense to see if some kind of partnerships can be worked out.