State-owned State Bank of India is lending like the global credit crisis never happened as it looks for places to park billions of dollars in new deposits.
Consumers have shifted tens of billions of dollars to India’s state-run banks amid the bailouts of the world’s most sophisticated financial institutions and concerns that global problems could infect India’s private-sector banks.
State Bank of India has been the biggest beneficiary of that trend. It is India’s largest bank by assets, including private-sector lenders, and is 60% owned by the government, but has remained a traditional lender rather than expanding into other financial instruments that sank many international banks. That conservatism saw its deposit base swell by close to 40% in the three months ended Dec. 31.
Now, it is on a lending spree, cutting interest rates on loans, snatching customers from competitors and doing its part to prevent India from getting stuck in the global slowdown.
Subhra Chatterjee, 39 years old and a cellphone company employee in Kolkata, used to have his savings account and his home loan with ICICI Bank Ltd., India’s largest private-sector bank. He appreciated ICICI’s telephone-banking and online-banking services as well as their bright branches. But in the last six months, his view of private-sector banks has soured as he watched banks elsewhere implode. This month, he flipped his savings and his $40,000 home loan to State Bank of India.
“People are disillusioned with the private-sector banks and all the charisma that was originally coming out of the private sector,” he said. “State Bank is extremely cash rich. That is why I changed to them.”
V. Vaidyanathan, executive director of ICICI Bank, said in an interview that the rise in deposits at state-run banks has more to do with the higher deposit rates and lower lending rates they are offering than with a flight to quality. He also noted that while liquidity late last year was “tight” for many banks, deposits are increasing again.
While banks in the U.S. and elsewhere are cutting back, State Bank of India is expanding. It hired 25,000 workers in the past year, plans to hire 10,000 in the coming year, and is adding 4,000 ATMs and 2,000 branches to its network of almost 10,000.
The health of State Bank of India and India’s other state-controlled banks, plus their willingness to ratchet up lending in tough times are reasons why India’s growth is relatively healthy compared with other economies. In the coming year, India’s economy is expected to expand at 6%, down from close to 9% a couple of years ago.
Over the weekend Indian Prime Minister Manmohan Singh said the country’s needs its banks to lower lending rates further following repeated monetary-easing measures by the central bank.
“With ample liquidity and low inflation, there is scope, perhaps, for a further moderation in interest rates,” he told a meeting of Indian business leaders Saturday.
State Bank’s history goes back more than 200 years to India’s days as a British colony. After independence, the government took it over, and the bank has been expected since then to act in the interest of uplifting the people of India
That used to mean it had to give loans that it didn’t expect to get back or set up branches in sparsely populated rural areas that couldn’t support them. In the last 15 years, though, as India reformed its economy, State Bank has received more independence from the government to boost its profits and modernize its branches to compete with private-sector banks.
The bank’s cash glut is behind its latest move to cut interest rates and promote home loans, car loans and small-business loans. Its mortgage-loan rates are 8%, more than two percentage points below some of its competitors. It has matched that with a nationwide advertising campaign. “Economy Booming or Slowing, SBI Keeps Your Business Moving,” says one of the bank’s posters. State Bank said around 60% of its new loans are taken over from competitors.
“The quantum of deposits that flowed in was very large,” said Seshadri Sen, banking analyst at Macquarie Research in Mumbai. “Now they are lending reasonably aggressively.”
Lending at State Bank and other public-sector banks rose 29% last year, up from 20% in 2007. State Bank plans to use some consumers’ yearning for safety to claw back some of the market share it has lost in the last decade. The company is sitting on close to $20 billion in cash above the amount it needs to operate. And if it can take advantage of its strong competitive position now, it could emerge from the downturn far stronger.
The bank also is using the surge in business to upgrade some of its branches. At a branch in the heart of old Mumbai, halfway between the Bombay Stock Exchange and India’s central bank, some clerks still sit under electric fans. Long lines of customers wait their turn, and banking hours run from 10:30 a.m. to 4:30 p.m. Just across the street, a brightly lit, air-conditioned ICICI Bank branch is open from 8 a.m. to 8 p.m. On a nearby corner, ABN Amro Bank and HSBC Bank also provide cheerier alternatives.
State Bank is repainting its branches with a uniform color scheme, adding air conditioning, televisions and an electronic token system to move customers faster. “We are asking people to smile more often,” said a general manager at State Bank’s headquarters in Mumbai. “We want our people to be more customer-friendly.”
It is the stability, not the smiles, that is luring customers. Foreign banks said they often can’t compete with State Bank of India’s rates. Growth in lending by foreign banks slowed to 17% last year from 31% in 2007. State Bank of India shares have shed about 35% of their value over the last 12 months.
Source – WSJ
