At the top of State Bank of India’s (SBI) head office in south Mumbai, Arun Kumar Purwar, chairman and managing director of India’s largest commercial bank, has just finished a meeting with a large foreign investor in the bank. Chief among the investor’s concerns is whether the new Congress-led government’s diktat to Indian banks to increase farm loans by 30% and restructure old ones will hurt SBI’s bottom line.
There are enough ways to lend profitably to the farm sector, says Mr Purwar, who has spent over three decades with the SBI group, more recently as head of an associate bank, State Bank of Patiala (SBP). Lending to agriculture, whether to finance the purchase of tractors or suppliers of milk, is the most profitable part of SBP’s business, he points out. Spreads are high on farm loans, argues Mr Purwar, conceding, however, that the non-performing loans to the farm sector are also higher at around 8%. But now that fat treasury profits have disappeared at state banks as interest rates have hardened, banks will have to go that “extra mile” to find good borrowers, he adds.
Under Mr Purwar, SBI made that extra effort to stay ahead of the market. Two years ago, the bank made an aggressive push into the retail loan market with a sharp cut in lending rates; today one-fifth of its loans are to that sector, up from just 3% in 2002. Healthcare, education and tourism will be the focus of the bank’s business in the service sector, which now accounts for about half of India’s GDP. Overseas, SBI is ready to break into new markets in Asia and Africa, perhaps even take over a local bank. Press reports suggest that SBI is close to acquiring a bank in Mauritius.
“We want to be a global bank. We have followed Indian trade and Indians into 28 countries, now we are ready to expand,” says Mr Purwar. SBI has entered non-core businesses with strong international partners: GE Capital for credit cards, Cardiff in life insurance. Negotiations are under way with international banks, including one French institution, for partnerships in investment banking and asset management arms.
Introducing technology and new skills into SBI is perhaps his toughest challenge. Unlike its competitors in the private sector, SBI cannot pay market salaries to hire the best talent available. “Managing the transition from decades-old business processes to new ones, equipping our employees with new skills to work in the new environment is a challenge,” says Mr Purwar. By March 2006, around two-thirds of SBI and its seven associate banks’ 14,000 branches will be networked.
The United Progressive Alliance (UPA) government has ruled out privatisation of the state banks, but promised them more autonomy. Mr Purwar, who is painfully aware of the advantages his competitors – the private and foreign banks – enjoy today, is expected to lead the pack of 27 state banks in shaking off some of those shackles.
