Market capitalisation does not reflect SBI’s true value

, outgoing
SBI
Chairman on his journey through challenges thrown up by demonetisation, GST, Covid and bank mergers not to mention YES Bank and Jet Airways.

Looking back at your life in State Bank of India, how would you like to summarise it?
It has been a very exciting journey. The first branch which I joined was in the interiors and throughout my career, there has been a variety of experience both in terms of places I have worked in as well as the variety of assignments I got. I do not think any bank other than State Bank of India can give this kind of exposure. I have travelled across the country and I have travelled across the world. And in the bank also, various assignments in HR, in large credit, small credit, mid size credit, overseas locations, heading UK operations, heading circles in northeast — it has been a wonderful journey.

Your tenure was through three extraordinary circumstances — demonetisation, GST & Covid crisis.
More than three. You mentioned demonetisation and I was managing director at that time, Then came GST but it did not have much to do directly with the State Bank of India but the merger of six banks partly as managing director of the retail bank and then later on as chairman and then of course IBC which was another big event. And of course, Covid-19 was totally unexpected and I would say that I have not seen anything like Covid before. This is a once-in-a-century event and it was also to happen during my tenure but I cannot help it.

And yes, there have been many challenges but at the same time, I am happy to say that at State Bank of India, we have been able to manage all these challenges and have not shied away from the responsibility which has been cast on State Bank of India. I have forgotten to mention YES Bank and Jet Airways. So it has been a very eventful period in that sense and very challenging, very exciting.

You led this entire process of taking a lot of SBI subsidiaries public and managed to unlock the real value of the subsidiaries. But why is the stock price refusing to go higher?
Yes, that is very true and I can say that is the only regret I have that the market capitalisation of the bank today does not reflect its true inherent value but over a period of time, I am still hopeful that market participants would realise the strength of State Bank of India and give it a fair value.

Are you still confident that we are not in for any moratorium shocker and that things will start normalising?
It does not seem to be so and this I am saying purely on the basis of the loan book of State Bank of India. It does not seem to be as bad. I am not saying that it cannot turn out to be bad but it is not a one quarter or two quarter thing. So depending upon how the economy performs going forward, if I look at its impact and if we are talking about FY21, then in terms of the impact on overall non-performing loans of the bank or the requirement for provisions is going to be perfectly in line with what the bank has estimated and has readied itself for.

FY22 would be very crucial because if there is a prolonged recession or a prolonged problem with the economy, then its impact on the financial system and the banking system will become inevitable.

Three years out, what would be the importance of YES Bank for SBI? Would it be treated as an investment which three to five years from now, SBI will be able to cash out of?
We are very confident and the way YES Bank has started rebuilding its franchise, in 3-5 years’ time, State Bank of India would like to exit because our commitment is for three years, 26% and after that the bank would be free to divest. Within 3-5 years, I am very confident that YES Bank will emerge very strong.

The general view in the market is that banks have a) become very, very risk averse. If I may say that in Hindi that dudh ka jala chaanch phoonk phoonk kar ke peeta hai (Once bitten, twice shy).
If I can answer in Hindi, to woh ek natural process hai (that is a natural process) and if we do not learn from the past and if it is business as usual like it was in the time of excess liquidity, then what have we learnt? So based on the learnings, most of the banks I presume have done some tightening around their underwriting practices and mortgages. When there was excess liquidity in the system banks were growing at 25%. At one point of time, State Bank also had a growth rate of 25%. We want to be lending in the same manner but at the same time we would be more than willing to share our sanction analysis report which shows how much work we are doing in terms of sanctions and disbursement every month. I have no issue with that.

We are sanctioning loans, we are growing our book and our earnings from the loan processing is higher than the previous year. Definitely, there has been a shift in the business mix of the banks and it is more of retail now than the corporate but in underwriting, we are definitely more prudent and there is no doubt about it. If that is equated with risk aversion, then so be it but there is growth in business as we speak. Year on year, we have grown by Rs 1,40,000 crore and that is about 7% plus and this growth is after whatever repayments come.

The bank’s balance sheet is so big and so for a growth of Rs 1,50,000 crore, you would have sanctioned and disbursed at least Rs 3-3.5 lakh crore. It is not that work is not happening. Work is happening and still if people feel that without PPA, without coal linkage one should give a loan to a power IPP, we will not do it again. If you call it risk aversion, then call it a risk aversion.

Given the growing job losses, should one worry about retail delinquencies?
If there is a job loss, there will be some impact but we also have to understand and realise that job losses are more in the informal sector and the people who have lost jobs are not in typical sense our borrowers. But there will be some delinquencies among salaried class people who had taken loans against salary or a housing loan or a car loan. I believe that in terms of percentage, the impact on retail will not be as high and again for SBI, the position is slightly different in the sense that we have more government sector loans and the job losses are not there. In the private sector, there will be an impact on some of the sectors like aviation or hotel or tourism.

During your tenure SBI set up a digital platform. Is that the next subsidiary which SBI wants to unlock?
Different possibilities are being explored and technically it is feasible. YONO is a platform that has taken shape and the future path for YONO would be that it will become a subsidiary and what you call a model where it becomes a service provider to many other banks who cannot and do not have the capability to invest in the scale at which SBI has invested in the platform. As far as the valuation is concerned, that was a part of a discussion and it came up how the start-ups get valued. The context in which I made that remark was if I look at the startup valuations, then YONO would be the largest startup from a legacy bank and going by the methodology for start up valuations, it should be valued at $40 million. We have to understand the context correctly.

What are you handing over to your successor?
The tenure of SBI Chairman has ranged from two and a half years to 8 years. Mostly it is two and a half years, three years, three and a half years. You do certain things which are left unfinished by your predecessors, you leave certain things for your successor to finish and that is how this story continues. But what should not change and remains unchanged is what is the value system which drives the bank.

In State Bank of India, we are proud of our value system and the successor also is part of the team which has been working for growth of the bank for its welfare, for strengthening it. It is just a continuation of the work but individual’s decision making, style of functioning differ and to that extent, the difference becomes visible but till such time, there is adherence to the core value system of the banks. I do not foresee any problem and I am carrying forward many unfinished items. There are many things which I have initiated which are difficult to complete in the three year tenure so I am expecting that my successor will finish that and just take something new which his successor in turn can carry forward.

Being the chairman of a big bank, is three years, three and a half years too little for somebody to change things around?
I am not boasting about myself but I said three years ago that whatever I want to do I will try to do within three years. You can do a lot whether the tenure is too long or too short but when we are appointed, we know that it is going to be something around this and as I said, we have had situations where the chairman had less than a year’s tenure. That was a very bad situation. 2000 onwards at least a minimum of two years’tenure was ensured and now it is a minimum of three years.

It is because the people are coming from the same organisation and they are part of the board and part of the policy making, part of the execution team, the succession is very quick and anyone who becomes chairman is able to settle in very quickly. But if a person was to come from outside, then a lot of time would go in understanding the organisation and State Bank of India is a very complex organisation with multiple businesses.

We have a finger in every pie and so for an organisation like this, if somebody is coming from inside, they settle in very quickly as you would have seen in the past also.

Right now SBI does not need capital and you have been very vocal about it. Maybe SBI will have to raise capital after sometime, but your stock is trading not even at one and a half times book. At this level, would SBI be comfortable about raising capital?
Definitely it is not about valuations, it is only about the need. The way our risk-weighted assets (RWA) are growing, we are very clear that internal accruals are sufficient to fund the RWA and that is why we never felt the need for raising any additional capital for risk management or the risk capital and not even for growth.