In the year-and-a-half since becoming the first woman chief of State Bank of India (SBI), India’s largest bank, 59-year-old Arundhati Bhattacharya has been putting in place deep-rooted changes, the results of which she believes will be visible in the days to come. Aggressively driving change at the banking behemoth (it ranks 152 on the Forbes Global 2000 list, a compilation of the world’s largest listed companies), she is also ensuring the bank’s processes become more robust. In a freewheeling interview, Bhattacharya, who figures on Forbes’s Asia’s Power Business Women list of 2015, talks about the economy, company managements and the changes she is making at the bank. Excerpts:
Q. One year after the Narendra Modi government took charge, what are the changes you are witnessing on the ground?
I would say action has been initiated on all the things that were being talked about. If you take it sector by sector, say, in metals and mining, you will find they are close to resolving many of the issues. The mines are slowly opening up. We would like it to happen even faster, but things are happening. If you look at the coal mines, at least the first round of auctions has happened. The law now also talks about commercial mining, something which is very important for the country if we are to exploit the mineral resources in a cost-efficient manner.
Similarly, in the road sector, the government is saying it is willing to take the risks on to itself rather than give it out to the promoter. So, it is saying if tolling is a risk, it is willing to do it on an annuity basis so that the tolling risk remains with the government. Similarly, it is saying it will not bid out a project unless all approvals are in place and at least 80 percent of the land is acquired. Earlier, none of these things were being maintained properly and we used to take it for granted that they will happen. They didn’t happen and all of us got into a jam.
The government is also working very hard on the bankruptcy law. There is a team of external experts which is giving inputs. We have been asked for our inputs too on several occasions. In the power sector as well, there are amendments to the Electricity Act in Parliament for the unbundling of transmission and distribution. If you look at it, in every sector of the economy where there were issues, the government is trying to ensure things become easier. But we must understand that we are a very large democracy, and there are various opinions in various areas and voices that need to be heard. Therefore, if you want to create a consensus and push these amendments, they take time. There is no point in getting impatient. If things have to happen in a sustained and sustainable manner, they will take time and we have to give that time to the government to do the job.
Also, consultations are much more frequent, much more open. All stakeholders meet to take stock on why things are not happening, and what more needs to be done. Take, for instance, capital for banks. Earlier, a letter used to be written by the banks. This year, the government has said it would like us to make presentations, like we do to any of the investors, about why we need capital. We should be able to press our case accordingly. It had, in fact, asked for it in May, but we need to go only after our results are out. So we have asked for time and said we will go in late-May or early-June after the results are out, and make a presentation as to where we see our business plans going and why capital should be given.
Q. You are raising up to Rs 15,000 crore by way of a public offer.
Yes, we have taken permission for that. What always happens is that there are so many steps in the process—going to shareholders, Sebi, RBI—it takes a lot of time to get everything in place. And sometimes the markets are very good and we miss opportunities because it takes so much time. So, as a matter of routine, we have got everything together and have a year’s window to go to the market. If we find a proper window, we will approach it [the market]. The government piece [through a preferential allotment] we will continue to take forward, depending on how much we are able to convince it. The government now takes you much more into confidence.
Similarly, we are also aware that the [government’s initiative of establishing a] Bank Board Bureau is going ahead. To that extent also, things should happen and once that comes into place, things will definitely speed up. Overall, we are not looking at anything that is majorly negative, except that we have to give time.
Q. From your bank’s perspective, therefore, are you looking at a recovery in the problem sectors?
Surely the recovery will come. The India potential is too huge for anybody to ignore. The only question is, ‘How soon?’ So, I would say we should see something happening in another two quarters as things start falling in place. For instance, if you look at defence projects, they have to be bid out properly, foreign investors have to come in, there has to be a contract, a joint venture partnership. Only then will you see the equity coming in, the debt coming in. So it takes time. And all the projects we are talking about are large projects. If you look at the Diamond Quadrilateral, the Sagar Mala ports, they are large projects and the government needs time for them to be put on paper, for technical matters, for evaluation of bankability, joint ventures to be put in place and so on. I think we will see very good times over the next 24 to 30 months. The start may be six to nine months away, but thereafter, things should start picking up pace.
Some people have begun seeing value in what we are trying to do. Look at promoters who were highly overleveraged; for instance, Suzlon. It has managed to sell off one of its major assets. It could be a crown jewel but that has been sold because Suzlon realises there is a lot of potential within the country. It does not want to be stressed and not be able to take advantage of what is happening here. And an investor has come in there as well. So, that particular company could look at concentrating on growing instead of worrying about where the debt servicing is coming from. Similarly, in West Bengal, Haldia Petrochemicals has started working fully; it is now almost at 95 to 100 percent capacity utilisation and its products are again beginning to get exported. So one by one we will begin to see these things happening. This takes time. I continue to say there is no point in panicking because it will happen. There are many other companies we have bifurcated, they are getting there. We will see takeovers happening.
Similarly, we have been asking the government to allow the sale of road projects. Under the earlier rule, people [builders] needed to keep at least a 26 percent stake. In the case of one builder, we have been following up a situation where he has two very good completed roads. He has another five roads under implementation for which he needs equity. If he is able to sell off the [first] two roads, that equity will be available and those [new] roads will get completed. Now, the problem was those wanting to buy—and there are bids on the table—want 100 percent stake. But because the original concession agreement requires the builder to retain 26 percent, the deal is not going through. We had requested the ministry to look at it [sale of 100 percent]. As long as the new people undertake the liability of keeping the roads properly maintained, the government should not have any reason for not allowing the sale. Now I read in the papers that the cabinet has considered 100 percent sale. Now many of these road contractors will start pushing out the roads.
Q. And there will be a multiplier effect…
Exactly. The moment one of the road promoters gets deleveraged and is able to bring in equity, he is able to pay the sub-contractors, who will start working on the next project. You will then find more employment happening, the use of steel and cement going up. So, all these have a large multiplier potential. But we need to get these roadblocks out of the way. There is enough push from our side. We are writing [to the government] constantly to suggest ways and means of how things can get moving in every sector. There is a lot of work that we are doing—work that is far outside the scope of just plain vanilla banking—to get things moving.
Q. Ever since you’ve taken charge, you’ve been at the forefront of pushing managements to clean up their act as part of your war against non-performing assets (NPAs). The third quarter results also show a decline in delinquencies. What are the internal systems you have put in place to make this happen?
The internal issue is that we have to understand risks. Risk has to become a dynamic concept, not simply ticking off boxes. How do you do that? There are many ways in which it can be done. First of all, whether there is clarity in the rank and file about what we are doing and what the risks are. Second, whether we are allocating them [risks] to the right party. For instance, the risk of getting approvals is allocated on to a promoter. But frankly, the approvals will be given by the government. So it [the risk] cannot be only the promoter, it also has to be the government. So, are we properly allocating these risks? Third is, if you are looking at something and realising there is a risk, how are we going to monitor it and how are we going to mitigate it? Banking is a business of taking risks; I cannot say at any point that I will not take risks. In that case, I might as well close down and go away. So the fact is, once I realise I have to take this risk in order to do my work, am I mitigating it properly and am I monitoring it properly and, lastly, am I getting paid for it? Am I realising the money that I need to get in order to take this risk?
In all these areas, all our verticals have done a lot of work. And if it means changing of processes and products, if it means a lot of training or a thorough overhaul of the way we see things, all of that is getting done. In fact, over the last one year, when we have not grown very highly, we have been growing very strongly internally. We have been improving our manner of doing business, our ability to understand where the business is going and how it is going. We’ve also been having very deep conversations with all the borrowers to explain to them where they should be and where they are. [We are] also getting them on board to say, ‘Yes, you need to be accepted as a good group to bank with and so, whatever needs to be done for that, please do it’.
Q. It’s almost like counselling.
Yes, a lot of counselling, a lot of hand-holding, a lot of pushing, everything has happened. Because, at the end of the day, nobody really wants to be seen as a defaulter in the system. Yes, there are a few black sheep. But then there are black sheep everywhere. We should not generalise and say everybody is bad. That doesn’t work. We have to see where they went wrong and why. If they are scaling very quickly, they need not only equity but also management bandwidth. In many cases, we found it wasn’t so much the money but the management bandwidth that didn’t scale at the same level. And as we are talking about management bandwidth outside, it is also our own management bandwidth that we are looking at. So we have done a lot of internal strengthening during the last one year and we are hopeful that these things will help us ensure that the business we take on is properly understood and risk-mitigated.
Q. Your bank is among the lowest in terms of mortality of restructured assets.
We try to bite the bullet if it is required. I continue to tell everybody that where we haven’t bitten the bullet it’s because we see an ability to do things. If there is no ability, then, at the end of the day, we will know it’s gone and we will bite the bullet. But if you tell us that for everything that shows a minimum signal, we should start biting the bullet… it’s like killing somebody who’s got the flu. We’ve got to wait and see whether he gets out of it or not. To that extent, we will have to have differentiated tactics for many of these things. And again, we’re trying to ensure that much of this filters down, people below also understand how things are.
Q. Yes, for a bank like yours, everyone has to be on the same page. Isn’t that a Herculean task?
Absolutely [laughs]. And that’s why I do not envy the government! I keep saying it’s like herding cats because everybody has a tendency of moving in their own direction. It is always a difficult thing, but I have a great group of people and most of us work in very close coordination with each other. I continue to say that the MDs I have—and hopefully the next chairman will come from these MDs—are all very much on the same page, and even down below, you can check the kind of teamwork we do. That is also a very big strength that we have, which is not there in many other organisations. It is definitely one of our biggest strengths.
Q. SBI is also known to be a great training ground for bankers in general.
Because we are internal to the bank. But by being internal, the only problem that happens is you are not externally-oriented to that extent. We are bringing in a lot of processes to ensure we are sufficiently externally oriented. We just had a strategy meeting of the board in which we had eminent speakers from outside telling us what the trends in banking and various areas are, so that the board is well-informed about how they can guide us. The offsite we had in Bengaluru went off extremely well, where Mr Nandan Nilekani and Mr [Vishal] Sikka both addressed us. Mr Shirish Apte and Mr Santrupt Misra were also there.
Q. The cost-to-income ratio has also declined of late. How is that playing out?
You know, the low-hanging fruit, whatever were the useless expenditures etc, we have taken out most of them. Now the cost-income ratio will have to be reduced through other very deep measures. That would mean a lot of stuff to do with the way we do business, the way we handle our IT, how to bring about rationalisation and cost-minimisation through these processes. We are aware that it is not something that will come easily. Because these are processes that you start and the reduction in costs only happens a little later. There is a lag. But we are on track. I don’t think we are lagging behind. We are doing a number of things to see how best we can use our resources. For instance, we are using a large number of resources for handling cash. My estimation is that 60 percent of all cash in the system goes through our portals. That’s something where a large number of people are involved, who are not doing very much of value-added service. So how can we get that out and put them in more value-added matters? We are creating a separate infrastructure for cash. We have done something in Patna and we will be replicating that. It will be totally technology-driven, so that more of these routine jobs can be taken over by systems and machines and our people are released to do more value-added work.
Also, the kind of follow-up we do. If we do it manually, it’s very difficult to keep track about who’s doing what. So now, we are pushing much of it into the system. So the entire system will do the follow-up and we get only the exceptions. If you get only the exceptions, you can not only fix the holes very quickly, but a lot of the manpower used for the manual piece gets taken away. So as I said, we’re doing very deep work that will not show results immediately, but will bring down our cost-income ratio over a period of time.
Q: The merger of associate banks with SBI does not seem to be on the frontburner any longer. What is your plan for them?
Wherever we can, we are trying to synergise much better. So that when we decide to do it [the merger]… maybe not me, maybe someone else, we do it as quickly as possible. It’s not on the frontburner at this point of time. In any case, we get assessed as a group. So whether I have them inside or outside [does not matter]. What happens when they are inside is then we will be able to close out the overlaps… they have a treasury, I have a treasury, etc. But having said that, there are so many other issues where we are still not on the same platform. Specially on HR matters. So slowly we need to get there.
I also want them to develop their own set of strengths. They don’t have to be clones of SBI. In their own areas, they are very respected and loved banks. People relate to them as ‘our bank’. You go to SBM [State Bank of Mysore], they will always say ‘namma bank’. Let them work on those strengths and let them be good outfits. Then we will see when we take it up.
(The interview was conducted before SBI’s annual results were declared on May 22, 2015)