#NDTVProfitExclusive | A conversation with #SBI's new Chairman CS Setty
What is Setty's three year agenda? What does he think of the bank’s valuation?
Watch him talk about this and more with @Vishwanath4389.
What is Setty's three year agenda? What does he think of the bank’s valuation?
Watch him talk about this and more with @Vishwanath4389.
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TVTranscript
00:00of this question is, what is this three-year agenda looking like for you as the new chairman
00:08at State Microsoft Day?
00:09Yeah.
00:10Thanks for having me on your show, Vishwanathan.
00:13And SBI, we are here not on account of speed, but on account of direction and intent.
00:27Right direction, right intent is something what brought us here in terms of the size,
00:32in terms of the positioning.
00:35So that philosophy of pursuing those objectives will remain.
00:41I think that's the first thing I would like to say.
00:46But the strategies in terms of what needs to be done on the business, in terms of our
00:53strategic directions, in terms of technology.
00:58What I intend to do is that in the last three to four years, we built a strong balance sheet.
01:09We have invested significantly in the technology and digitalization.
01:15Now we have to leverage on that.
01:18The leverage is of two kinds, in the sense that, you know, we have unparalleled branch
01:24presence, ATMs, business correspondents.
01:29And how do I marry this technology and digital to reach across the channels and increase
01:36the productivity would be my first priority.
01:39The productivity gains on account of the technology investments would be the focus.
01:47So the second feature would be that we have been secularly growing while we had a large
01:57retail growth for a couple of years and when corporate growth was not happening today.
02:02If you see retail personnel, MSME, agriculture, corporate, almost having a double digit growth.
02:12That means my focus on a particular segment is not there now.
02:19I need to grow in all the segments and I have the potential to grow.
02:25But among them, if I have to take out and I see that there's a good amount of income
02:35potential, earning potential in the MSME now, today.
02:39We believe that the kind of data set what is available in terms of GST, in terms of,
02:48you know, our own account statement analytics, the MSME lending is much more confidently
02:56we can lend to the MSMEs than what we were doing earlier.
03:00So the focus would be on the business front.
03:03These are the areas which we are going to do.
03:05For all these things, the central agenda would be the technology and digitalization.
03:10As you know, 2.0 also is going to be something which is going to be available during this
03:14period and which is going to completely transform the customer experience across the channels,
03:19omni-channel experience.
03:21So if I have to, you know, my answer is somehow, these are some of the things, but I think
03:27there are a lot of elements which go into it, you know, to achieve these objectives.
03:30I'm not getting into the numbers.
03:32Maybe the numbers, you will definitely come to that numbers later.
03:36I'll answer it.
03:37Okay.
03:38Let me break this up.
03:39You've got, you've got a massive loan book, right?
03:43And equally massive deposit.
03:46In fact, your deposit book is larger than the loan book currently.
03:50As a lender who's currently looking at the macro environment, as well as the environment
03:55in the banking sector, growing a big book like yours in an extremely competitive sort
04:02of landscape, whether it be liabilities or assets, how do you think, how do you think
04:08that will go by in the next three years?
04:10Yeah.
04:11One thing what, at the management level, we decided, and even the board level, we have
04:17decided that our growth will not come at any cost.
04:23I said in some context also that if I'm fighting for deposits, or competing for deposits, I
04:30would compete on non-rate warrants, you know, I don't, I don't want to get into the rate
04:36contest.
04:37Yeah.
04:38I would like to improve the service quality and our customer base is huge.
04:43And some of them probably not happy with some of the services.
04:48How do we bring them back?
04:50We have identified the whole universe of our customers who are the promoters, who are promoting
04:57our services, you know, their SBI is good, you place a bank with SBI.
05:02And then we have stagnant customers that means, you know, they have an account, but have not
05:05been transacting.
05:06We would like to reach out to them and ask them what makes you to come back.
05:11And there are attiters, they're leaving, you know, some of them probably are leaving for
05:14some reason, we would like to find out, you know, what are those reasons which are making
05:18them to leave.
05:20In the sense that our effort would be to fight on non-rate, you know, contest, not on the
05:28rate war.
05:29Okay.
05:30So is the case with the under credit, when you talk about credit, the credit growth,
05:34we would like to do without compromising on underwriting standards.
05:38I think this is something which we hard fought and established very, very strong underwriting
05:44standards today.
05:46And there is no way we can compromise on that.
05:48And even if the book grows a little slower, it's fine with us.
05:51Okay, fair enough.
05:54Coming within the lending ecosystem, two major parts, you've got a non-wholesale and a wholesale
06:01piece.
06:02Within the non-wholesale piece, you've got retail, you've got MSME as one of the focus
06:05areas as you mentioned.
06:06I want to touch upon retail and then come to MSME.
06:09First retail, extremely competitive, unsecured, not so exciting for lenders at this point
06:16in time after the Reserve Bank of India raised some concerns.
06:19And of course, you are seeing some amount of slippages on that side as well.
06:23You and I'm saying the banking system has been so much.
06:26To your mind, what is retail growth looking like for SBI, for the ecosystem?
06:33Do you think that maybe the times of that extremely 30%, 35% growth is sort of behind?
06:40Yeah, I think this year of 30%, 35% what we witnessed may not happen for two reasons.
06:46I think there was some pent up demand which resulted in that kind of growth.
06:50Obviously, it will moderate over a period of time.
06:55And the RBI measures also definitely have impacted the unsecured loan growth rates.
07:02But in our book, if I have to talk about SBI, as we keep on saying that there are unsecured
07:08loans and there are unsecured loans of SBI.
07:10So our policy would be that how do we strengthen and expand the user base.
07:19We don't want to give unsecured loan to the same person.
07:22So we have a significant number of salary package account customers who have not taken
07:28this unsecured loan yet.
07:30So we would like to reach out to them.
07:32And I think our potential is there.
07:34I'm not saying that we wouldn't be witnessing 30% to 35% growth rates, what we've had earlier.
07:42Obviously, to cover on the additional risk rates, we may have to increase the rates.
07:48Some amount of rate increase probably would happen in unsecured loan space.
07:52But our effort would be to get the best quality customer into our books.
07:57That's the unsecured piece.
07:58Now on the secured side, you know, under your predecessor, the focus on the home loan has
08:03come back, pushing that product as one of the major drivers of your retail book.
08:09Where does that go from here on?
08:10Because the reason I'm saying this is because hopefully the rate cycle is going to turn.
08:14So there is expectation that the demand is going to pick up again, and the demand is
08:19still there.
08:20I think we are doing the run rate is very good on the home loans.
08:24And I don't think there is any concern in terms of the home loan growth rate.
08:31I think that is one product which is doing extremely well in our books.
08:35And we'll continue to do that.
08:36And today we have the largest number of processing centers across the country, home loans.
08:42I don't think anybody else has got so many processing centers, which has reduced the
08:47turnaround time.
08:48Today, we are able to give a home loan in five days.
08:51So we are not only competing, yes, our rates are customer friendly, competitive rates.
08:56But beyond that rates, we are also providing the excellent customer service.
09:01We are one of the most trusted home loan provider in the country.
09:06We do extreme due diligence on the buildup and the paperwork.
09:11And these are also some of the USPs, which are not visible to anyone, but people would
09:15like to take home loan from SPI because of the due diligence which we do.
09:20And we protect the customer interest when they are buying the property.
09:24So I think that home loan book and the secured retail personal portfolio, I think that will
09:29continue to grow and will be one of the flagship products for us, a flagship product.
09:34Coming to the other focus area that you mentioned about MSME, what took bankers so long to realize
09:40that, okay, this is a growth area because, you know, there was about 10 odd years of
09:45corporate credit growth, which then translated into retail credit growth.
09:50Now finally, lenders, especially somebody the size of SBI is talking about MSME as a
09:55potential growth area.
09:58What is it that kept lenders out of the ecosystem so far?
10:02And what is it that you're seeing at this point of time has changed for you to enter?
10:06See, we have been traditionally lenders to the MSMEs.
10:09While the growth rates have been impacted, we were always the largest lender to the MSMEs.
10:16Even in the worst times, I think our MSME book was largest in the industry.
10:22The growth rate was lower.
10:25Essentially, I think some of the factors which had impacted MSMEs were dependent on the large
10:35corporates and the large corporates got into trouble.
10:37Correct.
10:38Obviously, they also had stakeholders and they didn't have the bandwidth to handle the
10:45issues which they have come out with.
10:47That made the growth rate slow down and even the absorption by the MSMEs itself has come
10:53down.
10:54But today, I think MSMEs are also doing well as the corporates are doing well.
11:00Okay.
11:01Number one.
11:01Number two, my ability to assess the needs of the MSMEs in a holistic manner without
11:08depending on the piece of paper what MSME is giving to me, a balance sheet or a P&L,
11:13I have a host of data which is available.
11:16Whether it could be bureau data, it could be a GSTN data, or my own internal account
11:21data which I am able to triangulate and tell them that this is the loan limit which is
11:25available to you.
11:27So, my ability to assess MSMEs, not the medium-sized entities, but mainly the small size,
11:36up to five crores.
11:37Today, up to five crores, we have completely...
11:41assessment is moved to a business rule engine based.
11:43Okay.
11:43That means, you know, if a customer comes and gives his PAN card, I don't need any paper,
11:49just PAN card.
11:51In 15 minutes, I will be able to tell him up to five crores whether what is the loan
11:54amount which he is going to get.
11:56So, I think this confidence is what is somehow driving everyone, not necessarily SBI.
12:02I think the whole system is growing at 20%, correct?
12:05So, the confidence level on the governance part and in terms of the data quality part
12:12has improved on the MSMEs, which is making the lenders to definitely go on.
12:17And the second important element which is also contributed is CGTMSC guarantees available
12:22up to five crores, which is a good development.
12:25Okay.
12:26Okay.
12:26So, for the bankers, there is that amount of confidence for those smaller loans.
12:30Got it.
12:31Let me touch on the wholesale piece now.
12:34Private CapEx has been making a comeback for three years.
12:38Finally, seems like it's here.
12:40There is some amount of rejuvenation within the corporate segment.
12:45In fact, you know, we had the RBI governor just talk about the fact that companies need
12:51to start coming in and trillions to start spending.
12:55As a lender who is active in the space and is probably going to lead the charge as far
13:00as private borrowing is concerned, how do you manage that growth without compromising
13:07on risk, without compromising on any kind of pricing issues because pricing has been
13:11a big talking point as far as corporate lending is concerned?
13:14No, I think these two things I already told you that we have set up an underwriting standards,
13:19whether it is a retail, whether it is MSME, whether agriculture or corporate.
13:25I think our underwriting standards, we are not going to compromise.
13:28When I say underwriting, it's not about the paperwork.
13:31It's about the way we assess the project.
13:35For example, maybe, you know, a few years ago, if a road project is there, we were trusting
13:41that the land will be available, right of way will be available and even with 50% right
13:46of way, probably we were giving the money.
13:48Today, our underwriting standards say that unless 95% right of way is available, not
13:54even one rupee is given to them, which means that our and the whole ecosystem also has
14:01changed and the quality of equity has changed and the promoters are willing to bring the
14:06upfront equity, equity available in the form of private equity or, you know, their own
14:11cash accruals, which they were able to make in the last two, three years.
14:15That means the upfront equity is available and we are insisting that, you know, whatever
14:21statutory approvals are required, the statutory acquisition of land is required, that needs
14:26to be in place.
14:27So, which gives us confidence that, you know, the kind of cycle which we have seen will
14:33not happen now.
14:34That is on the underwriting side.
14:37And the pricing side, I certainly believe that I think the risk is not being priced
14:42properly in the corporate side.
14:43Even today?
14:44Even today.
14:45Okay.
14:45And we don't want to get into that situation.
14:49I personally believe that project finance, where the risks of execution are there, that
14:55execution risks have to be properly priced.
14:57Yeah.
14:58Once the execution risk is over, it can move into a securitization date where the pricing
15:04can be a market-related pricing.
15:07I think it is important for all of us lenders, particularly in the corporate banking and
15:11project financing to realize that the execution risks have to be priced properly and we are
15:16not compromising on that.
15:18But doesn't that make it difficult to grow?
15:22So, I think people also come to us because of our ability to assess a project.
15:28It's not just price a project.
15:29It's not about pricing alone.
15:31Yeah.
15:32Once the execution is completed, obviously the price war starts and so, you know, they
15:37go around shopping.
15:39But as far as project financing has been an issue, I think it's still SBI is a preferred
15:43bank.
15:44Okay.
15:45One of the features of the previous boom cycle within the corporate finance space, especially
15:51project finance, was the fact that a large lender such as SBI or, you know, one of the
15:57other larger PSBs, they commit to something and then a whole host of smaller banks start
16:03coming in.
16:03Now, the draft norms that the RBI has proposed sort of puts an end to that discussion entirely.
16:10But the draft norms also create other issues that lenders are not very comfortable with,
16:15especially with respect to provisioning.
16:17How are you seeing the emerging regulatory environment and your growth in that context?
16:23So, the project finance provisioning and other guidelines still are yet to come.
16:30I think the draft guidelines are there.
16:33Without getting into the provisioning part, I think there are good elements.
16:36For example, I think the large number of banks leaning on the project finance without having
16:42the ability to assess a project.
16:44Yeah.
16:44See, even if it is primarily assessed by a large bank like SBI or any other bank, I think
16:51each of them have to take a call based on their ability to assess the risk and understand
16:56the risk.
16:57So, if it means that, you know, the number of banks participating in the project finance
17:01is to be limited, I think that's not a bad idea, in my view.
17:07So, today, I don't think there is a large number of private small banks coming in on
17:11the project.
17:13Project financing is still restricted to a dozen banks, not beyond that.
17:19So, and in the meantime, I think some of the banks which did not have the capability to
17:25assess the project also have developed those projects.
17:28Yes.
17:28And some of them completely exited anyways.
17:30So, they're not anywhere there.
17:31Even today, they're not coming in.
17:33So, that risk of, you know, some large bank being blamed for assessing and then taking
17:42participation, I don't think is there.
17:45And I'm sure each of them have capability to assess and if they have no capability,
17:50I think they should not participate in the project finance.
17:52So, the reason I bring this up is because like you have the ISI mark on, you know, kitchen
17:57household items.
17:59The SBIR mark was one of those things that project financing used to just look at and
18:05believe that there is no reason for us to look beyond that.
18:09Maybe that was probably not the right approach for the smaller lenders then, obviously.
18:15Let me come to the big question of this current environment, which is on the liabilities front.
18:20Now, one part of the market says banks are not giving enough to depositors.
18:25That's why depositors are not putting money and money is moving into capital markets and
18:29that's not real.
18:30The other part says that that's a silly argument, you know, whether it's capital market or not,
18:34it's still within the banking system.
18:36But the reason deposits are not there or not growing enough is probably because liquidity
18:42has been kept tight on purpose.
18:45There is a tightening cycle that is still in place, however short it might be left now.
18:50To your mind as a banker in the current environment, I know SBIR itself doesn't have any
18:55liquidity concerns, but for the broader system, what needs to be done?
19:01In terms of deposits, I think there is some movement away from the banks.
19:11It is also a fact that some of the money which goes into the other investment assets, a part
19:17of it will remain in the bank in some form or the other, but it is also important that
19:22some of the money which is going to mutual funds, even if it is coming back into the
19:26banking system, it may not come as a deposit, it may come as a borrowing, for example.
19:31So, overall liquidity is still available in whichever category it is going.
19:36But it is also a fact that I think much of this comparison is also happening because
19:41the credit growth is higher than the deposit growth.
19:44Deposit growth rate is definitely lower when compared to 20 and 21.
19:49We had the highest net financial savings in FY21.
19:53So, when compared to that, the saving rate looks lower and coupled with the fact that
20:02the credit growth is also happening, the contrast is stark now.
20:08Many of the banks are also trying to reach out to the customers and explaining them that
20:17even if you have a certain amount of corpus to invest, the asset allocation is important.
20:23Yeah.
20:24I think while we are not saying that do not invest in mutual funds or equities, I think
20:31a judicious mix of investments is required and the bank deposits are required to be continued
20:39to be in your portfolio.
20:40I think that is the outreach what we are trying to do with the customers.
20:43Correct.
20:44Globally, in the last one decade, I read one article in the Banker magazine, across the
20:51globe, for a decade, bankers have forgotten what a deposit is, because the deposit kept
20:57coming.
20:57Correct.
20:58Probably, we all have to go back to our roots, start focusing on the deposit mobilization,
21:04start focusing on the customer service and also innovate a little.
21:10Maybe we can combine a deposit product, an SIP product, an insurance product within the
21:17regulatory guidelines.
21:18How do we offer a combo product is something what the innovation means RBI is also talking
21:23about, not only on the rate innovation.
21:26That is the easiest thing to do.
21:27Just give 50 basic points, more probably some deposits will come, but essentially, focus
21:33on the customer service, customer retention and customer education.
21:38I truly believe that many of the banks have excellent reach and that reach has to be utilized.
21:45Okay.
21:47One product that your officers are also focusing on is on the wealth banking, that is obvious.
21:55That is obviously something that is usually linked to foreign banks and how they do wealth
22:00banking because they target the HRI clients.
22:03But as a lender, as big as SBIR, lender to every fourth Indian, every third Indian now.
22:11So, with that kind of reach, how important is wealth banking for you?
22:16And does that lean to this deposit strategy as well?
22:19Yes.
22:20Wealth is important.
22:22I think what we have looked at our customer base is that there are customers who look
22:31for wealth advisory and wealth products and wealth management.
22:37And there are also high net worth individuals who want good quality service.
22:43So, we have created a separate niche for them called premier banking.
22:49Yeah.
22:50Before they actually move to the wealth banking, what kind of services they are looking for?
22:57Okay.
22:57And what they're looking for is a personalized service.
23:00So, we have already rolled out almost 2000 relationship manager for premier banking.
23:07I'm not talking about wealth.
23:09Wealth is a combination of banking as well as financial service products.
23:15Yes.
23:15But these premier banking customers are looking only banking services.
23:20And they have a significant relationship value with us.
23:25So, our approach is that we ensure that the premier banking customers get good quality
23:31service from us and those step banking services or any other advisory which they want before
23:39they move to the wealth.
23:40But wealth has got a great potential in SBI.
23:44We have strengthened our feet on street relationship teams, virtual relationship teams.
23:51And we also realized that there's a lot of wealth product demand, wealth services demand
23:56among the non-resident Indians.
23:57Okay.
23:58We have a significant NRI customers.
24:00So, today we are trying to establish wealth hubs, both in Dubai and Bahrain, where we
24:07have offices to service to the NRIs on the wealth customer base.
24:12I think wealth is going to be one of the significant activities which we are going
24:16to drive.
24:17We have strengthened our teams.
24:18We have strengthened our technology.
24:20We have strengthened our reach.
24:22Okay.
24:22Fine.
24:23I want to focus on three final questions before we wrap this up.
24:27The first one is with regard to a new announcement by the Reserve Bank of India Governor on ULI,
24:33which is the Unified Lending Interface, which he is claiming is what UBI did to payment,
24:37ULI will do to lending.
24:39As a large lender, what is your expectation from this open platform for lending?
24:46Most of the financial services, similar to what happened in e-commerce and all,
24:51platformization is happening.
24:56This platformization can be a private platform or regulatory platform.
25:01Yeah.
25:02I think some of the redundancies what now in the system can be taken out.
25:07For instance, if 10, 12 banks have to individually integrate with a service provider,
25:14who is given an example of a crop loan.
25:18In a crop loan, there is satellite image which is being provided by a service provider,
25:23just giving an example.
25:25But if I have to integrate with him, 12 different banks will be integrating, 12 different banks
25:30will be negotiating on the price.
25:32Imagine if ULI can provide that platform.
25:35The service providers are available there on the platform.
25:37Integration has already happened.
25:39I just have to plug into the ULI.
25:42There could be several other services which can be provided on that.
25:46It could plan verification, many other things which they're building on that platform.
25:53The lender's ability to integrate with those service providers will tremendously increase.
26:00But it is only service.
26:02Next stage would be that whether we can bring the lenders and the borrowers or the depositors
26:09on the platform.
26:10Of course, this is primarily a lending platform, so the borrowers only will come
26:15and see the marketplace.
26:17This is like Wendy's.
26:18You just see the marketplace and see which is the bank which is offering the best home
26:22loan rate and then choose a bank to start the journey.
26:27It has got immense potential.
26:29Then what happens, the banks will get benefited because there is a quick integration with
26:35many of the service providers.
26:37Then you also have a larger platform, what you get.
26:41The third thing is that your post-sale service has to improve.
26:44Ultimately, any platform will commoditize the services.
26:50Then that's what happened in many of the e-commerce platforms also.
26:55Non-commoditized item, which will remain in any service industry is the quality of service.
27:01We need to focus on what would be my, if a home loan I'm acquiring through ULI, what
27:09would be my post-sale service?
27:10See how best I can serve the customer.
27:13How do I deliver subsequent to bringing him on board?
27:18I think it's a huge potential which is available in the ULI.
27:22Hopefully, I think we will be able to have many service providers coming in there and
27:27integration is happening.
27:29The last two questions, one is on the valuation that SBI enjoys.
27:35There was a big run up in the valuation in the last one year or so.
27:40However, Mr. Kara, your predecessor was not very happy the way the market is valuing SBI.
27:47What does Mr. Sethi think of the market, how they view SBI, and what is probably not being
27:54factored in as far as SBI is valued?
27:56It is our collective view.
27:57I think still valuation, we have a lot much valuation left to be recognized.
28:03If you see the price to book value of our bank and when compared to the other peers,
28:09the potential and the consistency of the results, what we have is a huge potential.
28:15We have provided and the shareholder value what we have created.
28:19I think I'm sure we deserve a better valuation than what we have today.
28:28In your letter to your employees, one thing you mentioned was with regard to
28:34this is India's decade, but it's also SBI's decade, or if you want to make it SBI's decade.
28:39Do you think that that's where this valuation question gets answered?
28:43So, the valuation is an important indicator of how the stakeholders perceive you.
28:52While we have never played to the market, market is important to us.
28:56We are a listed company.
28:59What we always have been focused on, when I said that if India's decade has to be SBI's
29:04decade, is to align our SBI priorities and SBI growth being a proxy to the economy.
29:13I think it goes hand in hand.
29:17The valuation definitely will have to be reflected in the way we perform consistently.
29:24I think consistency becomes one of the important things.
29:28So, I'm sure the valuation will get reflected as the economy of India's value also goes up.
29:38What is that one challenge that's probably not looking very scary right now,
29:41but definitely needs to be addressed in your mind?
29:45I don't call it scary.
29:46Obviously, it's that, but the challenge nevertheless is cyber security.
29:51I think it's a universal problem.
29:56But cyber security in the financial services is extremely important because
30:00there is a customer protection involved.
30:02It's not only about the company getting impacted.
30:05So, if I have to single out one non-financial challenge, it will be cyber security.
30:11All right.
30:12Thank you so much for this conversation.
30:15Absolutely love this chat with you and hopefully we'll keep talking over the next three years.
30:21Thank you for giving me this opportunity.