JOIN USIn its centenary year, Bangalore-based public sector lender State Bank of Mysore (SBM), a listed entity and associate bank of State Bank of India (SBI) could well be one of five associate banks in the SBI group to be merged with the parent bank.
If that happens, SBM will inevitably lose its identity. Meanwhile, the bank, after crossing the Rs 1 lakh crore-mark in business last fiscal, has chalked out plans to rejig its advances portfolio and increase business from non-resident Indians (NRIs). In conversation with S V Krishnamachari of Deccan Herald, the Managing Director of SBM, Sharad Sharma discusses all these and related issues.
How will be the current year for you?
As tough as last (fiscal) year, especially in terms of credit. Stalled projects, lack of fresh investments and of late, the turbulence in the foreign exchange market, are major concerns. Borrowers will think twice before looking at the ECB (external commercial borrowing) window.
Why do you think so?
Companies that raise loans in foreign currency will expose themselves to high forex (foreign exchange) risk because of falling rupee.
Coming to your bank's financials, net interest margin (NIM) has been on the decline over the past three to four quarters, from 3.31 per cent in Q2, FY2013 to 3.27 per cent in Q3 and 3.22 per cent in Q4, FY2013.
Yes. There are two reasons. Part of the decline was due to non-performing assets (NPAs) where there were interest reversals. We were not able to book interest in such cases. This led to a fall of about 15 to 20 basis points in our NIM.
Further, we took some conscious decisions during the past few quarters to reduce interest rates across retail loans.
In case of loans to SMEs (small and medium enterprises), we brought down interest rates by 2.5 to 3 per cent in the past three to four months, because we found that there was flight of business, we were losing customers due to predatory pricing by other banks.
How much was your NIM in the first quarter this fiscal?
It was marginally low, in the range of 2.9 to 3 per cent, as a release of above-mentioned measures.
Some public sector banks announced cuts in base rate following their July 3 meeting with FM P Chidambaram. Would SBM also follow suit?
Our base rate at 10.15 per cent was the lowest, after SBI, among public sector banks, before some of them announced rate cuts recently. Our ALCO (asset liability committee) will meet shortly to take a view on base rate cut, and deposit rates.
What is your business target for fiscal 2014?
We are looking at 18 to 20 per cent growth, both in deposits and advances. We want to bring down our C&I (corporate and industrial ) lending from the current level of 62 per cent, by 2 to 3 per cent this fiscal, and simultaneously grow our retail and SME advances; we are working accordingly.
The results have been encouraging. In the first quarter this fiscal, our housing loans have doubled, year-on-year, while car loans have grown even higher. Good monsoon this year augurs well for our SME lending.
From a sectoral viewpoint, what are the top three sectors? Are they under stress?
Iron and steel, textiles, and infrastructure.
Textiles is doing well, but the rest are certainly under stress.
Any fresh restructuring cases referred to in the first quarter of this fiscal?
Yes, there were six to seven cases, mainly from hotels, iron and steel, and oil distillers, for about Rs 250 to Rs 350 crore.
Your net NPAs almost doubled in two years, from 1.38 per cent in 2010-11 to 2.69 per cent in 2012-13. Did you see improvements in the first quarter this fiscal?
All segments — retail, SMEs and C&I were under pressure in the first quarter. The general downtrend in the economy is biting us, these are difficult times for all lenders.
Do you hope to see treasury operations doing well?
Yes, the numbers will be good, both sequentially and year-on-year, because of the movement in government securities rate.
Any specialised branches in the offing?
Yes, we plan to open two NRI branches this quarter in Bangalore and Mangalore to take advantage of the surge in NRI deposits. We have seen that SBT (State Bank of Travancore) is doing well in this area.
Will cost of deposits see improvement this year?
We have shed bulk deposits in a big way. From a high of 28 per cent of total deposits at March end 2012 and 25 per cent at March end 2013, they stood at about 18 per cent at June end this year.
Merger of associate banks of SBI is
imminent, one announcement is likely this quarter. Will it be SBM?
I don't know. The merger issue is regularly discussed, it also came up during the July 3 meeting. The committee headed by SBI MD & Group Executive (Associate & Subsidiaries) S Vishvanathan is likely to submit its report before SBI board next month.
What is the view of SBM employees?
There is no opposition to the merger from them. The officers’ association and also the unions are okay with it. We regularly talk to them. Presently, 82 per cent of our branches are in Karnataka, so post-merger, there could be some relocation of employees.
Any operational challenges? Also, how much time would it take?
We have the same IT super structure, risk management capability, systems and procedures as SBI. To complete the merger, it would take about four to six months, there are regulatory issues as well.
Have you firmed up fund-raising plans?
We do plan to raise about Rs 600 crore in the second half of this fiscal to meet our credit growth requirements. It would also depend upon market conditions.