Why PSBs may not be well-equipped to handle increased retail lending

 G Seetharaman, ET Bureau Nov 3, 2013, 10.39AM IST

Why Retail Makes SenseA loan delayed is a loan denied," says a Mumbai-based dealer for Hero MotoCorp, implying how crucial speedy approval and disbursement of a vehicle loan is. "Most public sector banks [PSBs] take more than a week to clear the loan. A private bank approves a loan in hours and disburses the money on the same day," he says, requesting anonymity. While the dealer has been working with private sector banks for 15 years now, he tied up with PSBs only three years ago. The dealer's experience is symptomatic of the way PSBs function in retail lending.

Recently, a slew of PSBs like State Bank of Indi Corporation Bank,Indian Overseas Ban, Vijaya Bank and Dena Bank cut rates on either consumer durable loans or vehicle loans or on both by up to 200 basis points (or 2%) in response to calls from the finance ministry to make these loans cheaper.

These may be measures to give a shot in the arm to these sectors: consumer durables output fell 0.8% in August compared to a 1% rise a year earlier; car sales were down 5% in the first six months of the current fiscal, and two-wheeler sales rose a marginal 3%. Finance minister P Chidambaram's nudging clearly had the Diwali season in sight, but these loans are not quite up the alley of PSBs.

Advantage Private Banks

Retail loans, which also include education, personal loans and credit cards outstanding, account for 18% of the Indian banking system's total credit, as per the latest RBI data; home loans make up more than half of retail lending, with vehicle loans being the single second-largest category (see Total Bank Credit...).

Traditionally, PSBs have been geared toward lending to corporates, agriculture and other priority sectors, which include housing and SMEs. Private sector banks like HDFC Bank, ICICI Bankand Kotak Mahindra Bank have earned their spurs by giving out retail loans.

Though PSBs have stepped up their consumer lending focus in the past few years, a cursory look at the numbers of the biggest PSBs and private banks reveals the former still has a long way to go. Retail accounts for less than 13% of the top five PSBs' loan books, while it accounts for more than a third of the five biggest private banks (see Where Private Banks...). Even within retail, private banks have a higher proportion of non-housing loans than their state-owned counterparts.

"They [PSBs] have been funding the investment of corporates while private banks have been funding consumption. For PSBs to understand consumption, they need human capital, effective monitoring of EMIs and an increased number of products," says Rajiv Mehta, an analyst with IIFL, a financial services firm. He adds that retail is less risky and more profitable than wholesale lending and that its growth is more predictable. "Given the smaller ticket size of loans, you need to cover more people to grow. You should add branches constantly," notes Mehta.
That is exactly what IDBI Bank intends to do. The bank plans to double its branch network to 2,000 by March 2015, and increase the share of consumer loans in its book. MS Raghavan, CMD, IDBI Bank, says since reach is essential to retail loans, PSBs are better placed than private banks. While there are 73,600 PSB branches, private banks have just over a fifth of that.

But a wide branch network is not everything. "The manager of a branch would be happier giving out one major corporate loan than several retail loans. That attitude should change. Since large corporate loans are risky, they should be priced properly, but we can't because of the competition. We have realized that to retain our margins we have to go retail," says Raghavan. HSU Kamath, CMD, Vijaya Bank, concurs: "In corporate loans, companies have substantial bargaining power, but in retail the pricing power is in the hands of the bank."

No Time to Rest

Vaibhav Agarwal, an analyst with Angel Broking, says he found on his recent visit to over 15 PSB branches in suburban Mumbai that there was no desire among officers to push consumer loans. "Sometimes they had no clue about schemes announced by their headquarters. Customers who get rejected by private banks for [non-home] retail loans go to PSBs, whose credit appraisal mechanism is not good enough," he adds.

There are signs of change among PSBs, however. The Hero MotoCorp dealer mentioned at the beginning says SBI is working on approving loans in a day and has created a separate vertical. Some banks are also experimenting with bundling two-wheeler or car loans with home loans, but the jury is still out on that.

Bullish November : Excellence is not an....Act..

Bullish November : Excellence is not an....Act..

My meeting with temperamental math genius Shakuntala Devi

by Kamala Thiagarajan;FP;12mts ago;5 Nov2013

It was the summer of 1998 and I was beginning my career by freelancing for Madras Plus, a popular city supplement for The Times of India. That afternoon, the editor of the features page handed me an assignment.

I was to interview Shakuntala Devi, the mathematical genius that journalists were so fond of referring to as the ‘human computer’. I’d always admired her and followed her progress, so the prospect of meeting her in person excited me. She had booked herself into a suite at the Taj Connemara and was meeting journalists from her hotel room.

Shakuntala Devi. Agencies.The local papers hailed her as not just a mathematical genius but also a world famous astrologer. There were claims that astrology was of course a matter of numbers and that she could read the numbers in your chart that foretold your future with precision, just as as she could compute complex fifty digit problems with ease.

After calling her secretary to confirm the interview, in a couple of hours, I found myself seated across from the woman whose intelligence the world was raving about. It’s been fifteen years, but there are details of that interview that play themselves out in technicolor in my mind. There were plenty of people milling about— journalists, members of her staff, people who had come for an astrological reading, armed with their date and time of birth, which was all she’d needed to make a ‘prediction’.

She was wearing a black cotton saree, bright red lipstick and a perpetual frown on her face. And there was no getting around the fact that she was irritable and short tempered. She snapped at the attendant who brought her a glass of water, was rude to a photographer, raised her voice when someone reminded her that people had queued up to have their charts read.

‘Can’t you see I’m BUSY? Let them wait!’ she roared. And five minutes into our interview, she interrupted me abruptly mid-sentence, rapping her knuckles sharply on the gleaming polished wood of the oval table between us. “Your paper MUST publish my interview on the front page. They MUST. Tell your editor, tell her NOW.”

Taken aback though I was, I knew that if we were to progress any further, I had to soothe ruffled feathers and quickly. I reassured her that we would give her top billing and that she deserved it.

Then when she’d calmed down, she resumed answering my questions as though nothing was amiss. Two things struck me: her passion for mathematics (there was no mistaking that) and her curious honesty. She had no qualms in admitting that she had an unusual childhood. Her father was a circus artist, often a performing magician who was well-versed with card tricks; she was the daughter of his third wife. He would take her on road shows and people would marvel at her ability to solve complex sums and guess the card that they’d picked up from the pack. In reality, she had memorized the arrangement of the entire deck. Her memory, just as her mathematical ability, was photographic and phenomenal.

When she spoke of mathematics, her eyes lit up. She told me that mathematics was everywhere, in every symmetric petal, in the stalks of wild flowers, even in the rhythmic chirping of birds. “We’re surrounded by mathematics and yet we fail to recognize it,” she rued. “It’s all a kind of conditioning.”

She said that her future dreams involved setting up an institute for poor children to realize their potential and that she hadn’t decided the venue yet. Her books had always focused on getting the younger generation interested in maths. She steadfastly refused to answer any questions on her astrological ability.

The next day, my aunt decided that she wanted her future told. She set up an appointment to see Ms Devi. When I asked how the reading went, I realized that it was all about mathematics too. Five hundred rupees in ten minutes!

Editors note: This article was originally published on 22 April 2013, shortly after the death of Shakuntala Devi.