‘Expect it to be high for some more time’: SBI Chairman Dinesh Khara on interest rates

India’s largest bank, State Bank of India, has reported its second-quarter numbers. Siddharth Zarabi, Managing Editor, Business Today TV, interviewed SBI Chairman Dinesh Kumar Khara to understand the key highlights of the results. Edited Excerpts:  

BT: SBI has solid numbers on all fronts. Can you take us through some key highlights? 

DK: We are pleased to announce a quarterly net profit of Rs 14,330 crore, up 8% on year-on-year (YoY). The reason for this is the impact of the increase in advances, which have seen growth almost uniformly, in retail SME and agriculture books. In terms of corporate, we have seen growth of about 6%. But we have seen 15 to 20% growth in retail, SME and agriculture book and even international book has seen growth of about 8%. Apart from that, we have also seen our e-loan advances going up YoY.  

Apart from that, the quality of the loan book is excellent. Our gross NPA ratio is at 2.55%, and our net NPA ratio is 0.70%. Credit costs are 0.22%. These are some of the contributing reasons, and we have seen reasonable growth in terms of our non-interest income—be it the loan processing charges, or cross-selling, we have seen growth everywhere. So, these are the reasons why we have seen much better results. 

When it comes to our slippage ratios, they have come down significantly as compared to the previous quarter. It is just for Rs 3,800 crore, and out of that, we have recovered Rs 1,200 crore. We have recovered this after September 30.  

BT: Given that such a large bank as yours has shown such all-round performance, do you expect that it will continue in the rest of the year? There are some concerns of stress and slowdown in certain sectors. 

DK: I don’t envisage any challenge. Also, when it comes to the quality of the book, the kind of mechanisms that we have put in place in terms of underwriting, sourcing, application underwriting, control and follow-up… we should be patient to maintain the kind of results that we have demonstrated in the past. 

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BT: What about deposit growth? SBI has grown its deposits by 11%. And that’s better than overall system growth. 

DK: We have seen a situation where our current account has grown. Our time deposit has grown. It is essential to know what we are observing is that during inflationary periods, there’s a tendency among customers to move towards the higher yielding products, and that is very natural. This is one of the reasons why our savings account deposits may not have grown at that kind of pace. 

Nevertheless, our efforts in scaling up our capability for handling transactions across the country have helped us improve our current account growth. I would say that when it comes to the CASA ratio, practically all our competitors have lost out in a significant manner—about 600 to 700 basis points. Compared to that, our CASA ratio has come down by only about 275 basis points. We could arrest this kind of fall essentially because we significantly scaled up our ability to raise current accounts across the potential markets in the country. 

BT: The RBI governor recently sounded a bit of a warning towards personal loans, especially the unsecured part. Is that a concern for you? 

DK: For us, we have got Rs 3.2 lakh crore worth of book, which is essentially unsecured personal. But we are lending to only those who are our ETVs existing to business customers. Also, there are very well-rated sectors such as the government sector, paramilitary, state governments, and public sector entities. All that comprises over 94% of our book. The remaining 6% of the book is to well-rated corporates who are like blue chip in the country. 

We don’t envisage any challenge as far as the unsecured book is concerned. 

We have a very elaborate structure in place. And our customer selection is right. That is the reason why we feel comfortable. And incidentally, in this, our gross NPA is 0.69. So that is a reflection of the quality of the book which we have underwritten. 

BT: How is the interest rate scenario likely to play out in the remaining two quarters? 

DK: The RBI governor has very clearly indicated that it cannot be range-bound when inflation is concerned. He has very clearly indicated that our target is to bring it down to 4%. Nevertheless, what I observe is that considering the kind of inflation, I expect the interest rates to remain at the same level. High for longer is something that is expected. But I don’t expect any kind of increase, but yes, of course, it is expected to be a little high for some more time. 

BT: We have seen higher bond yields, including in the United States. And obviously, there’s an impact here as well. Is there any impact on treasury income? 

DK: Normally, it impacts our treasury book. Since our treasury book is as high as about Rs 17 lakh crore, we’re very closely monitoring the treasury book and trying to see that the Mark to Market (MTM) impact is minimised. 

So, what we observe is that the bond dealers are very sensitive towards various developments across the globe. But I would say that still, the kind of flows which we get to see and also with the inclusion of bonds in the JP Morgan Global Bond Index will also probably help us in terms of softening of yields in the days to come, because of the increased market that will probably help us in softening the yields. And the softening yields always work well in terms of the MTM gain, which we can have. So that's how I really look at it as far as the impact on the bond paper or government yield is concerned.