Mr Dilip Mavinkurve, Managing Director, State Bank of Mysore
| Looking at Rs 600-crore inflow thru rights issue. |
Advance indications are that monsoons are likely to be 90-95 per cent normal… If the monsoon is alright for the kharif crop beginning in June we should be able to increase our agri portfolio.
Source :C. Shivkumar,:BL :Bangalore, May 16,2010
Mr Dilip Mavinkurve, Managing Director of the State Bank of Mysore, is not the quintessential modern day banker, talking derivatives and exotics. He is instead a complete public sector banker belonging to the traditional school, committed to development. In an interview to Business Line, Mr Mavinkurve spoke on his plans to push the bank's development-focused agenda.
You have estimated a very ambitious business growth target of 26 per cent in an environment of low corporate credit off-take. How are you going to achieve the target?
Credit off-take is low. But everybody is talking in terms of an 8 per cent GDP growth. But 8 per cent growth cannot be achieved unless agriculture grows by 3 per cent. This time everybody is talking about normal monsoons. Advance indications are that monsoons are likely to be 90-95 per cent normal. Last year, we were quite impacted by drought and flood. Our growth in the farm sector was the lowest. I am talking about Karnataka where we have our largest presence.
Second, there is also the debt relief factor. The ability of the farmers to pay back and take fresh loans was not there. Everything is now coming to a conclusion. One, the debt relief has been extended up to end of June. We hope that with this extension we should be able to convince everybody to take the relief and avail themselves of fresh loans. If the monsoon is alright for the kharif crop beginning in June we should be able to increase our agri portfolio.
Then there is the SME sector. The RBI has made it mandatory for collateral-free advances up to Rs 10 lakh. With cover from the Credit Guarantee Fund Trust for Micro and Small Enterprises, we should be in a position to see some additional growth. Overall, the SME sector appears to be picking up quite well. Though we did restructuring last year, there seems to be some improvement, particularly in the auto and other sectors, where there are a large number of SSIs. In main corporate accounts, sanctioned limits would be drawn for the implementation.
In addition, we have sizeable coffee assets in Chikmagalur and Hassan regions. The industry is beset with problems. Fortunately, the finance Bill this year announced a coffee relief package. This will also help us. Affected growers have been given another lease of life.
Does it mean that it would allow you to writeback some provisions on substandard assets?
Not too large. The coffee growers were also subject to agriculture debt relief. They were supposed to pay up within a stipulated time. They were not able to do it in view of the ongoing problems in the coffee plantation sector. Now they will be enabled to do it. Heavy rainfall caused some crop damage. Agriculture, therefore, will give us good growth.
What about capital requirements for sustaining the credit growth especially in a situation where tier-I capital increase is constrained?
We have proposed a rights issue. We had filed a draft prospectus with SEBI. We are required to get some approvals from the SBI, RBI and probably now from the Government since we are a statutory body, and since we come under the State Bank of India subsidiary Banks Act. SBI has already given the consent. The Acts have also been amended. We are awaiting the RBI's approval. Once that is through, the draft would become final. The inflow from the rights issue that we are looking at is Rs 600 crore. That should stand us in good stead for the next couple of years. With the increase in tier-I capital, we should be able to increase tier-II. This year whatever profits we get will help in tier-I accumulations. We have a tier-I capital adequacy of 7.8 now. Total CRAR, is about 12 .99 per cent. Although we are above 9 per cent, we are looking at further strengthening our tier-one capital. World over, the standard is strengthening tier-one capital.
What about perpetual bonds and preference shares?
We are not considering it this year. Last year, we raised Rs 100 crore. But this capital is expensive. We normally do a five-year capital planning in consultation with the SBI. The perpetual bond we raised was part of that consultation. This Rs 600 crore willlast us this financial year and the next. After about two-and-a half-years we may need to go for further capital depending on the business growth. The total capital adequacy we are planning is 13 per cent.
You are also active in the CDs market. Will it not increase the volatility of liabilities?
Yes. But we are not taking an excessive amount of CDs. As a policy we have certain caps on CDs. We have CDs outstanding of Rs 6,000 crore, though we have an approval for Rs 9,000 crore. Even within the ALCO we have an internal cap. Besides, CDs are also clubbed with bulk deposits. Both of them are considered volatile by us. From April 2009, we have kept a ceiling on them. That is one of the reasons for our profitability.
What about impact of the European crisis on credit? Is there a likelihood of domestic credit once again substituting for cross border flows?
The dependence on the euro is much greater than what is thought of. In the earlier days, the billing was done in dollar even to Europe. After the continuous weakness of the dollar, people started billing in euro. The textile sector started billing in euro. With the euro weakening now the effect is likely to be larger. It has just started. There is lots of uncertainty. Nobody wants to hold on to any position. There is bound to be high volatility in the next few months with short-term funds moving from one asset class to another.
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