New Delhi: Banks are improving their risk assessment systems with lessons learned from failed projects that they have financed, while the bankruptcy reforms have made them more confident in taking lending decisions, said Rajnish Kumar, chairman of State Bank of India (SBI).
In an interview, Kumar said that concerns of political pressure on public sector banks in making lending decisions are overplayed. He said that bad loans choking India’s banking system are mostly because of assumptions about economic growth that have gone wrong.
Kumar, who took the reins of SBI in October, spoke about the bank’s future growth strategy and key challenges confronting the banking sector. Edited excerpts from an interview:
How equipped is SBI and the traditional banking system in India to take on the disruption caused by new age financial technology (fintech) companies?
SBI is very well equipped. If you see our journey in the last couple of years, especially digital and technology, we have taken the lead. The entire programme of digital, technology and innovation in SBI revolves around four things: customer experience, cost efficiencies, superior risk management and employee satisfaction.
As you embrace new technology, how are you tackling the threat of cyberattacks?
For dealing with cybersecurity, awareness is essential. So there are programmes to make every employee aware of the threat. There is need for investment and a proactive approach for dealing with this menace. There are many instances of breaches, last year’s WannaCry is one such incident and it is a constant battle. You fortify, but still there will always be someone trying to breach it.
There are systematic measures that organizations need to take. We have taken all those measures and there are periodic reviews. These reviews are by the top management and by specialists.
How is SBI dealing with the decline in private investments in the Indian economy?
We have the largest customer base from the most underprivileged segment to the highly privileged. Each segment has different needs. Fintech firms and start-ups are mostly in the payments space or are in small lending category. When it comes to the payments segment, SBI is the market leader with a 30% share, be it BHIM (a payment application), wallets or RTGS (quick online fund transfer system). We are very well entrenched in every segment and we are constantly upgrading. We are eager to tie up with new age companies as indicated by our partnerships with Snapdeal or Ola. One has to be proactive and learn new things.
We are in talks with many fintech start-ups where we are open to following a partnership model. If someone has invested time, money and brain power and if the opportunity is suitable, we have no hesitation in joining hands.
Are you seeing a revival in demand for credit from the private sector?
There is recovery and it differs from sector to sector. But there is recovery in certain sectors such as roads, renewable energy. I’m also very hopeful about railways, which needs huge investment and it has a multiplier effect. Policies in railways are also now very enabling. When investment happens in railways, apart from convenience to commuters, there will be need for engineering projects and that will help SMEs, there will also be job creation.
Even increase in construction of roads and infrastructure projects leads to job creation. One sector that is seeing investor interest is steel. The capacity for steel production and demand has matched. As economic growth gains further momentum, it is only natural that the sector grows further.
There have been allegations that there is political pressure to lend to certain businessmen and that has in the past led to bad loans.
This issue about political pressure on lending decisions is overplayed. When credit is given there are certain processes and assumptions about a business. These assumptions could go wrong if economic conditions change. But any wrongdoing should be punished, be it banks, businessmen or those exerting outside pressure. The law should be allowed to take its own course. Banks are improving their risk assessment systems based on past experience.
Do you think the latest changes in the bankruptcy code debarring errant promoters from proposing revival schemes will reduce the number of parties bidding for such companies?
Bankruptcy code is a new system. It is a big reform and we have to make it a success. I believe there is a lot of investor interest in the assets that are undergoing insolvency proceedings. One has to see that there is a value in the enterprise.
What are the changes that you are bringing in the way business is done by SBI?
Each one in the bank is responsible to ensure that we provide the best service to customers. In addition to investing in technology, we are also imparting training to staff in providing better services to customers.
Do you think the quest for efficiency and the use of technology in the banking sector will lead to redundancy in workforce?
This was a concern that we had to deal with when we went for computerization in the 1980s. Would it have been possible to have such a developed banking sector without computerization? There is always some trade off. With deployment of technology, certain new sectors also emerge. Were there jobs in technology sector in the 80s? There is no way a business can reach out to the masses without technology.