Mispricing of risk due to excess liquidity: Dinesh Khara, chairman, State Bank of India

“During Covid, demand has certainly got affected and hopefully with the revival of the economy, demand should be back on track.” (File image)

Corporate demand has to pick up in order for credit growth to pick up, Dinesh Khara, chairman, State Bank of India, tells Shritama Bose in an interview. There has been a tendency to misprice risk amid an excess of liquidity, he adds. Edited excerpts:

Credit growth has become a serious problem for the banking sector. What would it take for it to pick up from the current 6-6.5% levels?
The credit growth is also a reflection of the real economy. There are a couple of reasons which we have seen in the past. Almost about Rs 2 lakh crore worth of deleveraging has happened in the corporate sector and naturally, it has impacted credit growth. So even if we are growing at 12-14% in retail, it will not show up in the banking sector credit growth if corporate credit doesn’t grow.

We have also observed that for large corporates sanctioned limits have remained unutilised to the extent of about 30%. Similarly, for the mid-corporate sector, the credit limits have remained unutilised to the extent of about 25%. Even for term loans, etc that we sanction, the unutilised limits are as high as 25-30%. During Covid, demand has certainly got affected and hopefully with the revival of the economy, demand should be back on track.

In August, the government had said there would be a fresh round of credit outreach programmes in October. How are you planning that?
We are all working on the nitty-gritties of the outreach programme and very soon, we should be in a position to announce it under the aegis of IBA (Indian Banks’ Association).

The focus would be to encourage people to borrow and to generate demand with the convenience of the funds available in the form of loans. It will be for all segments.

Pricing has hit rock-bottom in the wholesale market. How are you strategising in such a market?
Naturally, one has to decide up to what level one should go. That is something on which we have already made up our mind. Pricing has multiple components — the cost of resources, the risk premium we assign, based on which we arrive at the price that should be offered. We are quite cognisant of the various price dynamics and accordingly we are quoting prices which should take care of all stakeholders’ interests.

What is your outlook on liquidity? Is it hurting margins?
The system is still in a surplus mode. For the foreseeable future, we don’t see any challenge in terms of liquidity. There is ample liquidity to take care of the credit needs of customers. I can very well see that there is some kind of mispricing of risk because of the excess liquidity, but eventually it’s a call taken by each bank based on their thinking around balance sheet growth. Those would be the reasons for them going for a particular kind of pricing.

How persistent is the Covid-induced stress in small accounts?
I would give the example of the first quarter of the current financial year when there was a containment announced for various cities and there were mobility restrictions for almost two months. That affected the ability of our people to carry out collections. But effective June 16, when the mobility restrictions were eased, our employees could reach out to customers and we saw a significant pullback. Collection efficiency has improved for the system as a whole as also for us. It isn’t weighing too much on our mind, but we need to be alert and active to ensure that the collection efficiency is the best.

With the high competition in the home loan segment, are you ensuring credit quality?
The lending is being done based on credit scores, which are quite reliable. Even otherwise, we have got sufficient margin in our loan-to-value, which takes care of the volatility seen in prices. So, we are not too worried about the risk complexion of the portfolio with the reduction in interest rates.

What are your plans for Yono and how much of the business is coming from there?
We have strengthened Yono over a period of time. It is not just for retail, we have Yono Business, Yono Agri and Yono Global. We are working on all these components and trying to see how best we can make the journeys easier for the customer and make the app more and more intuitive. During the current financial year, we have disbursed about Rs 9,000 crore worth of pre-approved personal loans to about 4.5 lakh-odd customers. We have sanctioned 8,000-odd home loans aggregating to about Rs 6,000 crore and more than 10 lakh agri gold loans aggregating to over Rs 15,000 crore. We have reviewed Kisan credit cards worth Rs 5,000 crore to about 3.5 lakh customers with the help of Yono. We have sold mutual funds worth Rs 4,700 crore and 1.28 lakh life insurance policies. We’ve also sold 21.72 lakh personal accident policies aggregating to Rs 123 crore worth of premium.