A minimum of 3 per cent net interest margin (NIM) is required for public sector banks to take care of provisions and other requirements, said Mr O. P. Bhatt, Chairman, State Bank of India. He said this when asked to respond to the comments by the RBI Governor, Dr D. Subbarao, on Friday that Indian banks should reduce their NIM.
Explaining that this may not be achievable in the near future, Mr Bhatt said that in advanced countries where margins are low, base interest rates are much lower. However, in India, interest rates are high. Also, the percentage of fee income is much higher in advanced countries, which is not so in the case of Indian banks due to high transaction and other costs.
About SBI's excess SLR, he said, “Given the bank's business size of about Rs 13 lakh crore, a minimum of Rs 30,000-40,000 crore SLR is required to ensure that we are not taken by surprise.”
MFI lending
On the bank lending to microfinance institutions (MFIs), he said if it is suddenly stopped, it would cause more of a problem. “SBI is continuing to lend to MFIs. The problem is with a few MFIs,” he pointed out. However, there is now a felt need for different regulations for the sector. Overseas expansion through the inorganic route is not a priority for SBI right now, said Mr Bhatt. “We don't look at growth for growth's sake. We look at growth where it is relevant to our customers.”
Global standing
Earlier, delivering the closing remarks at Bancon 2010, Mr Bhatt said that considering India's population, SBI should have two lakh branches in the country.
This he said while drawing a parallel to France's Credit Agricole, one of the largest banks in that country, which has about 10,000 branches catering to a population of 60 million.
But SBI today is smaller than the 10th largest bank in China, and faced with the economic growth that the country aims to achieve, India's largest bank has to grow much bigger, he said.
According to him, economic growth is possible only on the back of banks. “And SBI needs to get big — about 10 times bigger than what we are today.” Banks have to start planning, recruiting and training for the exponential growth.
“India in the coming months will be the No. 1 growth destination of the world,” he said. But to make it the third largest economy in the world in the next two-three decades, the country should think big, he explained. “If we don't think realistically big, we cannot achieve the greatness that is in store for us,” said Mr Bhatt.
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