India's stable government augurs well for growth

As the manufacturing sector speeds up, more investments could come into the country, says State Bank of India Chairperson

The Indian banking industry is gradually emerging out of a difficult phase and the next two quarters will see further improvement in the scenario, says Arundhati Bhattacharya, Chairperson, State Bank of India, the country's largest lender.
"There has been no doubt about the growth potential of the Indian economy," she points out. "The real opportunity for India, an importing country, is that the price of two main items on its import list - oil and gold - has declined sharply. To that extent, we are in a sweet spot now."
Also, the fact that the country has a stable government, which is focused on stability and growth, augurs well for the economy, notes Bhattacharya. "The government is focused on ensuring that growth is sustainable," she says. "So when things take off, it will be a sustainable growth cycle."
As the manufacturing sector speeds up, more investments could come in. "People are talking about projects, preparing plans, but they haven't discussed the point that we would actually be needing money from banks," says Bhattacharya. "To that extent, there will be some stress, as credit growth won't go up much."
The easing of interest rates will also put pressure on margins. Hopefully though, the stress on banks will lessen and the requirement for more provisions will reduce gradually, says the SBI chairperson.
Asked about the likelihood of further easing of interest rates, Bhattacharya says it may not happen immediately. Two factors that could influence interest rates are the final outcome of the monsoons and the way the US rates move. "Barring these two factors, most of the other risks are over. If the consumer price index remains within the original range of six per cent by January 2016, as prescribed by the Reserve Bank of India, then there could be space for easing of rates."
She expects the Indian rupee to also remain stable, "even though the so-called rate tantrums may be around the corner." India is sufficiently prepared to be able to defend its currency, she adds.
Bhattacharya expects remittances to remain buoyant, growing by 15 to 16 per cent this year, on the back of a 14 per cent expansion last year. "At SBI, we have nice products including an instant transfer of remittance," she explains. "We ensure real-time transfer of money to your account in India, and not just with the State Bank." Remittances that are sent through exchange companies are credited into the beneficiary accounts the next day.
NRIs believe that the India story is a good one, she remarks. "I've told many international gatherings that whatever rating Moody's and Standard & Poor's might give India, as far as NRIs are concerned, we are a triple 'A' risk country. They believe that this country has a lot of potential and the wherewithal to give adequate returns to the money sent here and also ensure its safety."
SBI soon plans to tap into the Gulf NRI market for pension fund offerings, especially after the Pension Funds Regulatory and Development Authority received clarifications from the RBI about NRIs investing in such funds. An SBI pension fund subsidiary has a corpus of Rs350 billion under management and ensures the best of returns.
"We believe that for Gulf NRIs, who do not have much opportunity in terms of pensions, this will be a great product. If they start investing reasonable sums at a young age, they can expect reasonable pension after 60," says Bhattacharya.
SBI, which has a branch at the Dubai International Finance Centre, is still awaiting approval for its proposed full-fledged branch in the UAE. But it is expanding its operations in other geographies. It is upgrading its rep office in Seoul to a full-fledged branch and opening rep offices in Myanmar and Sao Paulo.
It is also expanding its presence in the UK by opening two more retail branches, bringing the total to 11 retail branches and one wholesale branch. "We are interested in expanding our international operations in Asia, especially our neighbourhood, and Africa," notes Bhattacharya. The bank is not keen on expanding its network in the western world.
Referring to the Indian banking industry, Bhattacharya feels there is need for consolidation and mergers. "There has to be three to four large players in the country, just as countries such as China and Australia have three or four top players dominating the sector," she says.
But SBI does not see any benefits in merging its associates with itself. "We are valued as a group even today, and the balance sheets of our associates are not outside our valuations." SBI fully owns two of its associates and has over 75 per cent stake in the remaining three.
Bhattacharya admits that competition is tough in the industry and it is likely to get tougher as unrelated players such as e-commerce firms and telcos get into the business.
She also feels that there is need for country-specific treatment of regulations, and that the parameters and standards for the developing and developed world should be different.
"In India, the need for funds is huge, but we do not have that much capital," she points out. "But does this mean banks' capital requirements have to go up because of regulation; to the extent that we cannot expand our balance-sheet?"
She calls for a balance between risk, mitigation and growth. The Indian government is infusing funds into public sector banks to help meet tough new global capital requirements.

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