BS Banking Annual 2019: Indian banks safe, say SBI, HDFC Bank chiefs

The Indian banking system is safe and is focused to protect customers’ interests, according to the chiefs of the two largest banks in the country — State Bank of India (SBI) and HDFC Bank.

“There is a lot more clarity between the government and  banks as to what needs to be done. I do believe there is no systemic risk in the Indian banking system. Let me repeat that very categorically,” said Aditya Puri, managing director, HDFC Bank.

“Is the banking system safe, secure and fine? I think so. Everyone, including the Reserve Bank of India, has come out to say banks in India have not been allowed to fail. Either they will get capital or they will be merged. And banks by and large have started to lend, because they have capability enough,” said Puri.

Indian banking system is also pretty advanced and even tops in some aspects, such as customer convenience. There is no other country that can equal India in unified payments systems (UPI). Account number portability is not required when people have such systems in place.

“We are more advanced than Europe in this respect. Let me tell you that they tried to implement open banking in Europe, but we have in a way already implemented it by the unified payment interface (UPI),” said SBI chairman Rajnish Kumar at the fireside chat.

“If you see what we have done in terms of mobile banking, we are probably among the top three in the world in terms of the total offering plus frictionless banking to a customer. Indian banking is doing quite fine, coming along well. It is open banking, it has competition, and our charges by the way are the lowest in the world,” said Puri.

The ongoing crisis in non-banking financial companies (NBFCs) is not something that should spell concerns of a system failure, the two senior bankers said reassuringly. NBFCs as such were a case of borrowing short and lending long. 

“NBFCs by itself, if properly handled, is a good business. But if you borrow at 6 per cent and you want to lend at 26 per cent to an asset that is not liquid (real estate for example) it’s terrible business. That’s called greed,” Puri said.

“As usual, a liquidity issue became a solvency issue,” said  Kumar. NBFCs did cause losses to banks, but Kumar defended the lending, saying that the banks lent to them, seeing that the ratings and financials also matched the risk appetite and modelling of the banks. “If that AAA becomes D after a few days, it is indeed shocking,” Kumar said.

Credit demand is firming up and is coming from road, solar power projects, and from the oil and gas sector, in particular from city gas projects for SBI. 

Indian banking is doing quite fine, coming along well. It is open banking, it has competition, and our charges by the way are the lowest in the world Aditya Puri, MD, HDFC Bank
For HDFC Bank, the festive season has seen “phenomenal returns”. Demand is also coming from retail, particularly in the case of two-wheelers. Demand is generating from rural and semi-urban areas, payment system-related demand from merchants has been strong for HDFC Bank, as has demand for working capital.  

“The demand slowdown is a reality. But the fact is also that in October and November, everybody said that we are better off than we were in August. Based on our conversations, where we get the first insights, with businessmen, industrialists, manufacturers, it seems that we are on a recovery path, and things are looking up,” said Kumar, adding that the economy fared better in October and November, than in August or September.

“In the last 10 days, we are having conversations around many  projects, which was missing in the past three-four months when nobody was coming to us for loans. At least they have started coming now, and indicating they may need money. Hopefully, all those intentions will materialise,” Kumar said.

“Is there scope for optimism? I think yes. But please do not have unbounded optimism, but there will be a recovery. Our own estimate is that from the first quarter of the next calendar year we will see a gradual pick-up,” Puri said.

“The initial impetus should come from government spending, and I think they are moving in that direction. They need to do more divestment. The scope to get more from goods and services tax (GST) is phenomenal. So, is there a cause for concern? Yes, but there is no reason for being too pessimistic. Do you have cause for action? Yes. Do we have cause for dismay? Absolutely not,” Puri said.

In the case of non-performing assets, “definitely the worst is over,” Puri said. Kumar hailed the Supreme Court verdict in the Essar Steel case, since the old debate between the rights of financial creditors and operational creditors has been settled for good.

Whoever deserves credit, the credit is available. Who doesn’t deserve credit, it is not available. Rajnish Kumar Chairman, State Bank of India
“What the Supreme Court has done, I hope and I am presuming, is that they have settled the debate around the entire Insolvency and Bankruptcy Code,” Kumar said, adding that the original idea was always to preserve the enterprise value of the company and let it be a going concern, but earlier there were hurdles arising out of ambiguities around the rights of various parties. “With clarity coming on all issues, the resolution process will be faster.”  

 Kumar said SBI, being the largest bank in the system, and being owned by the government, cannot shy away from giving loans. There is no pressure from the government to give loans, but the bank is also aware that not everyone would be creditworthy.

“Whoever deserves credit, the credit is available. Who doesn’t deserve credit, it is not available,” the SBI chairman said.

Bank branches are here to stay, and so will be the human touch, according to the bankers. Even as SBI has done branch rationalisation, it is still in the process of opening 600 branches in the next seven to eight months.

“Please understand if you follow and listen to the technology guys then all the jobs will be with robots, everything will be automated, everything will be connected, with no human beings in between. But who will buy whatever you manufacture,” said Puri.

“You started with brick and click. Brick is here, click is here, Amazon is also here. And Amazon is also going to brick,” Puri said.

The SBI chief defended his bank’s stance in lowering the savings rate to 3 per cent.

“A savings bank looks like a cheap product, but it’s actually the most expensive product from the bank’s perspective. It is a transaction account. It should not be seen from a returns perspective. All my branch network, all my ATM network, 250,000 people, payment system, cyber security…it is a huge cost associated with managing the savings account.”

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