Speaker 1: Hello, and welcome to the India Today Business Todo's studio
Speaker 1: here at the World Economic Forum in Sami and joining
Speaker 1: me now Chellas Nava Salusti, the Chairman of the State
Speaker 1: Bank of India, mister city a very warm welcome. We
Speaker 1: need all the warmth here in our studios here, but
Speaker 1: thank you for making the time and the backdrop of
Speaker 1: this conversation. This first question that I really want to
Speaker 1: ask you is that the world is in trade turmoil.
Speaker 1: There are geopolitical shocks every two days or every day.
Speaker 1: A CEO all across the world wakes up, reads the
Speaker 1: headlines and then figures out what is going to happen
Speaker 1: to his business in all of this turmoil. One key
Speaker 1: message that keeps sticking out, also from foreign CEOs is
Speaker 1: India's resilience, political stability and the maturity of its fiscal,
Speaker 1: monetary and administrative policies. How do you yourself see the
Speaker 1: current uh you know, situation of India visa vither of
Speaker 1: the globe.
Speaker 2: First of all, thank you Verma Sad for having me
Speaker 2: on your show India. I think this resilient India story
Speaker 2: is talk of dours you know this time and even
Speaker 2: the last year when we were here while geopolitical disruptions,
Speaker 2: tariff related issues, trade dislocations, all of them have put
Speaker 2: a lot of pressure across the globe and India has
Speaker 2: no exception. But the way India managed in terms of
Speaker 2: fiscal prudence, in terms of ensuring that you know, sufficient
Speaker 2: liquidity is there in the system, and some of the
Speaker 2: heavy lifting done with the Government of India in terms
Speaker 2: of supporting the infrastructure. So all of them indicate. Even
Speaker 2: if you see the latest IMF estimates, our own estimate
Speaker 2: also puts India's GDP growth around seven point five percent.
Speaker 2: I think it's a it's a very resilient story. And
Speaker 2: I see that both the calendar A twenty six and
Speaker 2: twenty seven paying out very well for India. Banking system
Speaker 2: is robust and we expect that the government continues to
Speaker 2: have the prudential fiscal management and that gives us confidence
Speaker 2: that the India's resilience story continues.
Speaker 1: If we take two thousand and eight as the cutoff
Speaker 1: here from there, we have seen every few years there
Speaker 1: is a global shock which then has some amount of
Speaker 1: impact on India, some spillovers. In two thousand and eight,
Speaker 1: there was a great decoupling theory that we used to
Speaker 1: talk about it before that. I want to follow up
Speaker 1: your observation that given the current global context, is there
Speaker 1: any spillower risk that we also need to keep in
Speaker 1: mind with regard to the Indian economy.
Speaker 2: So the interconnectedness as increased over the years. If you
Speaker 2: really see twenty ten decoupling story did not play out
Speaker 2: as much as we wanted. Right, we were also impacted
Speaker 2: and we had undertaken one of the largest cleanup in
Speaker 2: the banking system in terms of acid quality reviews and
Speaker 2: recapitalization of the public sector banks. But in the last decade,
Speaker 2: what we have seen is that the lot of legislative measures,
Speaker 2: a lot of fiscal measures, and also in terms of
Speaker 2: the strengthening of the banking system, both from a regulatory
Speaker 2: side as well as the banking management side, has made
Speaker 2: I think India, I don't. I can't use the word
Speaker 2: that the decoupled from the rest of the world, but
Speaker 2: I think much more, as we mentioned right in the beginning,
Speaker 2: much more resilient to handle this disruptions c.
Speaker 1: Our re engagement with global trade. But in a different context.
Speaker 1: Over the last few years, we are pursuing currently in
Speaker 1: conversations for more than a dozen trade deals. Some have
Speaker 1: reached fruition, A big one with the European Union is
Speaker 1: perhaps around the corner. The United States is work in progress.
Speaker 1: What does this mean for Indian industry in terms of
Speaker 1: newer opportunities and for a lender of your size and stature,
Speaker 1: how do you intend to support the momentum that this
Speaker 1: kind of new trade engagement is likely to generate?
Speaker 2: So new trade engagements? You know, the way India are
Speaker 2: pursued to have these free trade agreements to pursue something
Speaker 2: which is win win is not that you know you
Speaker 2: are giving away something or not giving away at all.
Speaker 2: That approach has now more to a more pragmatic approach
Speaker 2: that what kind of trade facilitation can be done while
Speaker 2: using the FDAs is still in the hands of the industries. Right,
Speaker 2: the committantly can have a freated agreement, but how do
Speaker 2: you use that FTA is up to the industries and
Speaker 2: I'm sure that the industry bodies are working on that.
Speaker 2: And also, if you see, the free DAID agreements also
Speaker 2: had helped us in terms of geographical diversification of the trade.
Speaker 2: Not necessarily that you are and one particular country are
Speaker 2: a group of countries. You are highly dependent on export
Speaker 2: oriented activities. Now we see that much more diversification happening.
Speaker 2: There is one part and as the trade finance part,
Speaker 2: we still we are the largest trade finance provider to
Speaker 2: the Indian industries today. Out of my ninety billion dollar
Speaker 2: overseas book, almost thirty billion twenty five to twenty seven
Speaker 2: billion dollar is a trade book and predominantly funding the
Speaker 2: Indian corporates accessing the overseas trade finance.
Speaker 1: That's a very significant number and point that you have
Speaker 1: shared with us.
Speaker 2: You know, you.
Speaker 1: Spoke about our high growth rate seven point five percent,
Speaker 1: inflation at pretty much historic lows. The monetary system has responded.
Speaker 1: RBA has eased rates, liquidity support has been provided. What's
Speaker 1: your base case for the cost of capital going forward
Speaker 1: for pretty much every class of borrowers in India.
Speaker 2: So the policy rate cards almost one hundred and twenty
Speaker 2: five dis point in the last two to fifteen months
Speaker 2: has helped the softening of the interest rates on the
Speaker 2: loan side, whether it is a retail loans or corporate loans. Broadly,
Speaker 2: I think there is a softening on the corporate side.
Speaker 2: There's still you know, we have a concept of mclr right.
Speaker 2: The marginal cost has not come down as much as
Speaker 2: we wanted, our the industry wants, mainly because I think
Speaker 2: the cost of deposits have remained more or less sticky.
Speaker 2: So there is a good growth as an indicate that
Speaker 2: industry level good credit growth and deposit growth is slightly lagging,
Speaker 2: which is putting pressure on banks to not to cut
Speaker 2: the interest rates as much as they desire to on
Speaker 2: the deposits. So this having said that, I think some
Speaker 2: of the monitor measures on the fiscal measures are helping
Speaker 2: to achieve a good credit growth which I believe is sustainable,
Speaker 2: maybe in the range of twelve to fourteen percent. The
Speaker 2: system leveled credit growth coeres.
Speaker 1: On the deposit side. And I'm not asking you this
Speaker 1: as an sbas specific question, but broadly speaking, at the
Speaker 1: macro level, at the policy level, is there something that
Speaker 1: you feel needs to be done, because I would say,
Speaker 1: and you are the expert on this, that it seems
Speaker 1: to be that there is a bit of a structural
Speaker 1: break with the past behavior of fixed deposits, although by
Speaker 1: quantum they still remain the largest, there is a trend
Speaker 1: shift that seems to be happening. So does the system
Speaker 1: need to respond differently.
Speaker 2: I'm sure. So that's many a time I spoke on this.
Speaker 2: The structural shift which you mentioned is definitely happening, and
Speaker 2: as the economy is mature and the households individual's ability
Speaker 2: to access various non banking financial same instruments, this structural
Speaker 2: shift is definitely here to stay. How banks have to
Speaker 2: structure their balance sheets now with this, in my view,
Speaker 2: I think the shift is almost irreversible. There could be
Speaker 2: some flows happening aong their equity market is doing well,
Speaker 2: there will larger flows. If not doing well, smaller flows,
Speaker 2: but flows definitely will be there. If you see the
Speaker 2: bank deposit go one x, the mutual fund go through
Speaker 2: three x, right, so, which means that the banks probably
Speaker 2: have to access the markets more in terms of funding
Speaker 2: their asset growth. Some of these money which is moving
Speaker 2: to pension funds, mutual funds, insurance definitely has to come
Speaker 2: back to the real economy and support the banks raising
Speaker 2: the capital, particularly from the dead capital market.
Speaker 1: So going forward in twenty twenty six, what is the
Speaker 1: biggest challenge to sustain the strong credit growth momentum the
Speaker 1: numbers that you also gave, is it a demand or
Speaker 1: tightness in funding, what would you say will be required
Speaker 1: to keep it sustained for the foreseable future.
Speaker 2: One is Indian economy is all about domestic consumption and
Speaker 2: domestic investment story. Well, we do want to have export markets,
Speaker 2: and service exports are doing very well and merchandise exports
Speaker 2: are also picking up, and so it is broadly the
Speaker 2: domestic consumption and domestic investment story, which means that the
Speaker 2: credit growth broadly coming from the domestic consumption. Even if
Speaker 2: the corporates have to invest, they would like to see
Speaker 2: sustained domestic consumption. So the first part is whether this
Speaker 2: consumption demand is going to be sustained. In our view,
Speaker 2: our house views that is going to be sustained. And
Speaker 2: number two, adequate liquidity in the banking system. I'm very
Speaker 2: glad to share. I think the RBI always have been
Speaker 2: assuring us and also ensuring that system liquidity is adequately
Speaker 2: provided for. These are the two major things. And while
Speaker 2: global disruptions and the narratives will keep happening, I think
Speaker 2: for India these two important things are there. And while
Speaker 2: fiscal management continues to be the bedrock of inin econ.
Speaker 1: That's a very good point and it's clear that not
Speaker 1: just from the monetary policy side, but also from the
Speaker 1: fiscal policy side. We've seen a massive support to consumption.
Speaker 1: The JST cuts were unprecedented and we had income tax rationalization.
Speaker 1: Also there is a string of reforms. I want to
Speaker 1: ask you a broader question on reforms again. Twenty twenty
Speaker 1: five very clearly a big year for reforms. Prime Mister
Speaker 1: Modi has indicated that path will continue in twenty twenty six.
Speaker 1: So you know, we started this conversation with a broader thing.
Speaker 1: What's your own belief about the reform story of India
Speaker 1: and how you expected to pan out.
Speaker 2: So I was just listening to the Minister yesterday in
Speaker 2: your India Today conversation. I think one point which we
Speaker 2: all must recognize that a lot of rationalization of the
Speaker 2: regulations and loss compliance burdened on the industry is sought
Speaker 2: to be reduced. Labor codes is again is a big
Speaker 2: reform which has been there for in discussion for a
Speaker 2: long time. And now the way the industry has taken
Speaker 2: and re orienting its deliver policies to suit the courts
Speaker 2: is a very very important development in my view. So
Speaker 2: the reforms objective of the Government of India is to
Speaker 2: ensure that he is of doing business and also give
Speaker 2: confidence to the investors that this one country which will
Speaker 2: continue on the reform's path. But if I have to
Speaker 2: really ask one thing I think we have also been
Speaker 2: mentioning from our house point of view is that while
Speaker 2: the fiscal prudence is there on the Government of India side,
Speaker 2: the same level of prudence has to come on the
Speaker 2: state level states because the states have to play an
Speaker 2: important roles. And I see that almost nine major states
Speaker 2: representing in douvos presenting their industrial policies and investment climate
Speaker 2: is very good development in our view.
Speaker 1: Cercactly Again a broader question and this I want you
Speaker 1: to explain to our viewers who are for years now
Speaker 1: been sponding to and listening to answers on the question
Speaker 1: of private KPEX cycle. Recently, when I put this question
Speaker 1: to someone, he said, we need to relook at this.
Speaker 1: There may not be investment going into old sectors which
Speaker 1: are well established. A lot of money is going into
Speaker 1: newer sectors, including for example, data centers.
Speaker 2: There is FDI.
Speaker 1: Also, Adesh alone, for example, has signed up for twenty
Speaker 1: two percent of all commitments in FDA that have happened
Speaker 1: in the past one year. How would you explain the
Speaker 1: private KPX cycle right now?
Speaker 2: I think the conventional way of looking at the private
Speaker 2: capex cycle needs to be changed. And also some of
Speaker 2: these industries what you mentioned are capital intensive and the
Speaker 2: capital is not necessarily coming from the dead capital. There's
Speaker 2: a lot of capitalists flowing into these sectors while we
Speaker 2: have very strong pipe and we keep mentioning about the pipeline,
Speaker 2: and the pipeline is coming from various sunrise sectors. Some
Speaker 2: of them are not truly sunrise in the sense that
Speaker 2: they've been there for some time, like renewables, they're seeing
Speaker 2: pickup there, data centers as you mentioned, and we see
Speaker 2: even green hydrogen, and you know, many of these activities
Speaker 2: not necessarily funded by dead capital people. And also some
Speaker 2: of these excess cache is cash flows what they have
Speaker 2: they're using on the capital expenditure. I think we need
Speaker 2: to like we have identified eight core sunrise sectors today
Speaker 2: and we are setting up a center of excellence which
Speaker 2: will be inaugurated on the thirty first, And this also
Speaker 2: shows that our focus will continue to be on the
Speaker 2: conventional industry is steal cement roads will continue to be there.
Speaker 2: The future of capital expenditure, the private capital expenditure is
Speaker 2: going to be in these sunrise sectors. You yeah, I
Speaker 2: may not be immediately able to do that, but I
Speaker 2: think we are looking at green hydrogen, semiconductors, data centers,
Speaker 2: renewers will continue to be one of the focus areas.
Speaker 2: So these are some of the things, you know, which
Speaker 2: we will be focusing on. And here in these eight sectors,
Speaker 2: we are not only developing industry best practices in financing,
Speaker 2: we are developing you know, capacity building for funding them
Speaker 2: in case if any capital requirement is there. We have
Speaker 2: currently around twenty five partners partner banks which are side
Speaker 2: u with SBI, where we will be helping them to
Speaker 2: understand and also engage with the industry that what exactly
Speaker 2: they're looking for the financing those sectors in a manner
Speaker 2: of which probably will have to be looked at differently.
Speaker 1: Absolutely because new sectors also mean a new kind of
Speaker 1: risk which might not have been assessed and fact factored in.
Speaker 1: As we wind down the conversation, I and I ask
Speaker 1: you this every time I meet you. I interviewed you
Speaker 1: last year when you were one the cover of Business Today,
Speaker 1: I want to ask you this about the health of
Speaker 1: the banking system the broader macro story over the last
Speaker 1: ten years. If we say that India is resilient, if
Speaker 1: our economic engines are doing well, and we're very optimistic
Speaker 1: as a nation, the banking story is fundamental to that.
Speaker 1: Had the cleanup not happened, we would not have been
Speaker 1: where we are today. There is no doubt in my
Speaker 1: mind on that. As you look ahead, are you confident
Speaker 1: that there can never be any recurrence of such episodes? Again,
Speaker 1: there might be some sectoral risks that might come in
Speaker 1: due to certain kind of behavior, certain retail delinquency, But
Speaker 1: broadly saying one or two, three years, what kind of
Speaker 1: outline can you offer us on that topic.
Speaker 2: Icality is inherent nature of bank right, fundamental to that.
Speaker 2: But how best the banking industry today to handle those cycles?
Speaker 2: That's all about resilience. And we started the conversation with
Speaker 2: resilience and I'm glad that we are ending with the resilience.
Speaker 2: And if we have to say, I'm very confident that
Speaker 2: today banking in India globally, if the banking sector is
Speaker 2: doing very well, I think we are writing the benign
Speaker 2: asset quality cycle. Even if you keep that asset quality
Speaker 2: issues aside, capital buffers are strong now and the ability
Speaker 2: of the banks to assess the risk, both at the
Speaker 2: credit risk level and more importantly on the operational risk
Speaker 2: level is much more robust now. This is not come overnight.
Speaker 2: You know, we have invested in the technologies, digitalization and
Speaker 2: access to the data in Indian context is very important
Speaker 2: that you know how the underwriting is going to be
Speaker 2: taken up. And I'm very sure that at least for
Speaker 2: five years we may not have any challenges. Five years
Speaker 2: beyond five years is difficult to predict. But even if
Speaker 2: the cycles hit, I think banking industry is a much
Speaker 2: more robust position to handle them.
Speaker 1: One very final quick question, and this is your own
Speaker 1: sense of satisfaction and your observations with regard to Indian industry.
Speaker 1: You know, meeting up to the.
Speaker 2: Age of AI.
Speaker 1: AI is everywhere global corporations are doubling down on it.
Speaker 1: How do you see Indian industry matching up to this
Speaker 1: unprecedented technological change that is happening.
Speaker 2: So this conversation being technology being central to the agenda happens,
Speaker 2: you know when we meet the industry is in fact,
Speaker 2: I'm very glad that every conversation I have with industries,
Speaker 2: whether it is a manufacturing industry or even the service industry,
Speaker 2: the conversation is all about technology. And here in Dowers
Speaker 2: also the broader conversation, apart from whatever geopolitical issues we
Speaker 2: keep talking about, is all about technology and how you
Speaker 2: build the resilience systems both for your own internal processing
Speaker 2: as well as customer facing applications. I think the technological
Speaker 2: investments in India are significant now in the industry level,
Speaker 2: even in NBFC sector. A lot of digitalization is happening.
Speaker 2: But one area, if I have to call out, I
Speaker 2: think the technology investment in MSM is still a long
Speaker 2: way to go. Probably we may have to focus on
Speaker 2: that most more importantly, that they should not be technologically obscelistent,
Speaker 2: They should not face that kind of system and they
Speaker 2: should not become the weakest link in the strong chain.
Speaker 1: Absolutely strong chain is perhaps the final word and headline
Speaker 1: takeaway that I take from this conversation with the Chairman
Speaker 1: of State Bank of India, Sir, Thank you very much
Speaker 1: for your time with That is a wrap on this conversation.
Speaker 2: We'll see you again until then, goodbye,