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The P G Kakodkar Chat

Andrew Hilton (Fri Nov 1 08:57:22 1996 IST):

Good morning, Mr. Kakodkar. I work with Citibank in New York. Some Indian colleagues of mine mentioned this chat and I thought I would log on to learn a little about Indian banking trends.Can I start asking questions?

Is Mr Kakodkar in?

Good morning Mr. Hilton. I will be very happy to answer your questions regarding Indian banking.

How does SBI manage to maintain it's profitability in spite of having to cater to the rural sections of the country?

What was the need for State Bank to go in for its GDR issue at this stage?

Good morning Mr. Kakodkar...I am from Bombay. I welcome this opportunity to chat with you.

Hullo, Mr Kakodkar, pleasure speaking with you. We have all heard about the State bank's Global Depository Receipt issue. How is it doing? Is it one of India's most suvccessful GDR issues ever?

Andrew : SBI has all types of customers. 85% of the top corporates in India do business with SBI. In addition, SBI has a significant share of 45% in India's exports & imports. As fas as our business in rural areas is concerned our vast network of nearly 6000 branches in rural ans semi urban areas give us an unparallel reach to the masses. It also helps us in collecting a good part fo our deposits. Further, only 40% of our credit is provided to agriculturists , small scale ind's, and small business. Here also, only loans below Rs. 200000 are given at concessional rates. Rest of the loans are at normal commercial rates. Thanks to all these factors, State Bank has always been making profits since it's inception nad has been giving a good dividend to it's shareholders. In year 95-96 for e.g, SBI registered a profit of Rs. 8.31 billion, and announced a dividend of 35%. This year also, the business is quite good, and we expect the bank to register better profits during the year.

I am chatting in from Sydney. How is the chat going?

Mr Kakodkar, we would very much like to bank with an Indian bank. But they are few? Does SBI intend to increase its branches worldwide, not that banking has been liberalised in India?

Cynthia : Yes. It is true that SBI's GDR issue was the biggest ever from an Indian entity. We got a subscription of around US $ 860 million for a declared issue of US $ 350 million and a green shoe option of US $ 50 million. However, due to the limitation on foreign holdings to the extent of 20%, we could accept only US $ 350 million and green shoe option of only US $ 19.95 million. We, received a premium of 5.12 on the date of pricing on 3rd October, and the premium now stands at around 22%.

Thanks for your response, Mr. Kakodkar. How does SBI plan to compete (service-wise) with foreign and other private banks. Citibank itself I believe is marketing very aggressively in your country.

Good morning, Mr Kakodkar. I am loggin in from London. It is pretty early in the morning, here, but I could not miss the opportunity to speak with you. Investors in India are concerned about the slowing down of the Indian economy. Exports, we understand, will decline this fiscal year. There are no substantial policy initiatives to take the economy forward. What ius your perception of all this?

Mr Kakodkar, I have gotten the hold of the latest issue of Business India, which I read regularly, and in the list of best banks, State Bank comes rather low in the list? Why this poor performance from such a mighty and huge bank, the largest in India?

Do you believe the Indian federal bank's loosening up of interest rates went far enough to ease the pressure on liquidity?

Mr. Kakodakar, I have been banking with SBI for the last 15 years but have never received exceptional service. I recently opened an account with one of the private Indian banks opened in my vicinity. And the service I get there is excellent. I am continuing to bank with SBI only for old-times sake but my children refuse to go anywhere other than the new banks with their plush offices and personalised service.Are you taking any steps to improve SBI's services?

Srinivasa : As you know State Bank is growing very fast. And to enable us to fund more assets, it is necessary to have a bigger capital base. For e.g, last year our capital adequacy ratio came down to 11.60% from 12.70% earlier year. Similarly, we are also to make investments in the subsidiaries that we are planning, in the area of credit cards and a brokerage house. To ensure that our capital adequacy ratio remains well above 8% at all times, it necessary to increase capital either Tier1 or Tier2 on an ongoing basis.

What was the opposition to the State Bank GDR issue, on the fear that it would increase foreign stake and dilute Indian holding, and control? Is this true? Is State Bank under any risk of going under foreign control?

Mr Kakodkar,Good morning! I hope you are well. What is your vision for the Indian economy, Sir? Do you believe the compulsions of a coalition government are hindering a coherent economic agenda?

Sumit Ray : SBI already has 50 offices in 34 countries in every time zone. We are now planning to open offices at Johannesburg and Durban in South Africa, a representaive office in Shanghai, and a joint sector bank in Moscow. Our offices outsidde India, are generally involved in India related business i.e. exports, imports, LC's, gurantees, etc. We also facilitate remittances to India from Non Resident Indians. We are not doing retail business in the foreign countries where we are located.

Mr Kakodkar,Good morning! I hope you are well. What is your vision for the Indian economy, Sir? Do you believe the compulsions of a coalition government are hindering a coherent economic agenda?

Mr Kakodkar, there is no denying the service received in any of the government banks in India is horrible the staff is rude and slow, and they behave as they are doing you a favour by serving you? With such service, why should we continue to bank with Indian banks which only care for very large accounts?

Namashkar, Kakodkarsaheb. How are you? I left India 20 years ago when I secured admission to medical school here in the States. I am one of those cynical Indians who will never encourage one of your salesman out here who want me to invest my money in your schemes. And you know why? Because when I wanted a loan to come here to study, the great State Bank of India said rthey would not give me money to do so. Freom what I hear, things have not changed. Things are still as bad as they used to be. Rude tellers, indifferent staff. The worst thing that has happened to Indian banking is bank nationalisation.

Mr Kakodkar, may I have your response please?

Sometime ago, I understand the banks association in India had drafted an action plan to improve service to customers at government-owned banks in the country. Have these guidelines been implemented at your bank, Sir?

Andrew: Foreign banks like Citibank and other new pvt. sector banks which have been recently opened in the country, have very few branches and that too are located at Metro centres. They normally handle business of high network indiviuals or business from the top corporates. In view of the fact, that their capacity for rupee funding is very limited, nad the fact htat the needs of the corporates are of a very high order, foreign banks like Citibank and other pvt. sector Indian banks are not able to take care of the needs of large funds of the corporates. Further, as nearly 85% of the corporates already bank with us we do not expect to lose any of our business to the foreign banks or the Indian sector banks. We have also taken necessary steps to face the competition. For the top corporates we have already opened a special corporate accounts group branch which takes care of the top corporates exclusively thru' relationship managers. One branch has already been opened in Mumbai and three more branches will come up shortly in New Delhi and Calutta and Madras. These branches directly report to the Managing Director Coroporate Banking nad therefore the decision making is very fast. Further more, we are computerising all our branches in metro and urban centres. 400 branches have already been computerised and another 600 branches will be computerised by the end of March 1997. more....

Sir, are there any plans to privatise the major Indian banks, including the SBI? And don't you think that it would be better for India and her economy to do so?

Andrew : Contd..
Through these steps we are confident that we will be to successfully compete with both foreign banks and Indian sector banks.

Thanks again for your very insightful responses. I see that a lot of people are asking you questions so I will sit back a while and "listen" to your answers.

What about the McKinsey Report? When are you planning to implement it? Will it be implemented intoto? Or will only some of the agency's recommendations be implemented?

What about the subsidiary banks? is there any reason for them to survive as separate entities? Why not merge them into regional banking corporations? State Bank of Bikaner and Patiala could become the SBI (Northern division) and so on?

I know you will not reply to these kind of questions. India's greatest handicap is the absence of a service mentality. And whatever it does -- liberalisation and privatisation -- nothing will ever change unless this attitude changes. And it could start off at the banks!

Sir, you just mentioned abut opening a corporate section to serve large corporates? But that is just the point. your service to small depositors is nothing to write home about. Why then should we not shift to foreign and private banks?

William : What you say is true to some extent. In the early part of this year due to the election and the uncertainity about the new govt., there was a slow down in both industry and other business. In India generally, businessmen take decisions based on policy announcements made in the budget generally presented in February. This year, as the elections were in May and as the budget was presented only in late June, there was a delay in the investment decisions of the industries. Hence the first five months were marked with a slow down in the economy, and the banking ind's advances came down by nearly Rs. 46 billion by the end of August 96. We have however, observed that in September there has been a growth and we expect this growth to continue in the next half year. This year the rains have been very good. and thanks to good crops they expect a lot of money to come into the system through the agriculturists after they sell their crop in the coming months. Further, thanks to the busy season policy announced by and the decline in the prime lending rate announced by the various banks I expect the business to grow up and will acheive good growth by the end of this year.This growht however maybe little slower than what was expereinced last year.

Cynthia : Yes. The steps taken by the Reserve bank to bring down the cash reserve ratio by 2% over a peiod of 3 months will pump in liquidity to the extent of over Rs. 80 billion. This along with the lending rates brought down by almost all the banks will improve liquidity and boost demand for banks credit.

Don't you think the interest rates should be freed from the control of the Reserve Bank, which is in turn under the government's control (RBI is no Deutsche Bank). And the Indian government's obsession in controlling inflation is ruining the countrys growth rate. China has a 12% growth rate with a 20% inflation. So why can't India aim for 7% growth and inflation at 10%

Kakodkarji, I am just a very humble middle class person. I wish i were a humble farmer, then at least i could become a PM! however, sir, i wish to take loan to do small business, but your bank officials want security, running into lakhs. how can humble middle class person have so much security? if i did, i would not be humble midlle class person!! i am using a friends link

How does State Bank plan to meet the challenge of foreign banks in India. will the need to compete not affect your thousands and thousands of rural branches, which are often not the most viable. Will the need for profits hit the lower sections of people,

Dr. V. Kulkarni : As you know the older banks are always at a disadvantage compared to the new banks whcih have started in the last 2 years. They can start straigth away with computerised services in very well decorated offices and with no problems from the unions etc. State Bank of India however, is taking a no. of steps to improve it's service to it's customers. We have observed that large volumes of business lead to deterioration in service. And service can be improved in a big way thru' computerisation. We have therefore taken a project to computerise over 2000 branches during 3 years starting from April 96. Most of these brances are located in m,etros nad urban centres. We have already computersied 400 branches and we expect to reach a 1000 branches by 31 March 1997. Another 1000 branches will be fully computerised by Mar' 1999. Thru these steps and providing training to our frontline staff we expect to improve our services in the years to come.

In your reply to Dr Kulkarni, you have said that computerisation will improve service. But the fact is not machines but of men. The staff at State Bank is very rude and indifferent, who really don't seem to care about you? How can that be improved upon?

Ryan : The liberalisation, privatisation and globalisation of the economy which started in 1992, is continuing after the arrival of the new govt. in New Delhi. Thanks to the common minimum porg. brought about by all the parties to the coalition govt. the economic reforms are going on at full speed. The focus now is on infrastructural growth. The sectors, which will get priority are power, telecom, roads, etc. I expect the economy to maintain a growth of between 6-7%. The foreign instituional investors investment in India during the year has been over US $ 2 billion. Similarly foreign direct investmensts are also increasing during the year. I expect that with the reforms continuning the country will acheive substantial growth in the years to come.

Mr Kakodkar, SBI has over 2 lakh employees? Isn't that too much? Why not cut that down to half? And are not unions a source of perennial trouble, one reason why your banks's productivity is so low?

What in your opinion, Sir, are the three greatest threats confronting the Indian economy? And how can they be overcome?

why is it that even when the economy of countries do badly, banks always do well?

William : All the guidelines have been implemented in our bank. In addition we are computerising our branches to ensure that our service to customers becomes more nad more efficient.

What will be the repurcussions of the reduction of the prime lending rate? POsitive or negative - for the bank and for the borrower?

What about the McKinsey Report? When are you planning to implement it? Will it be implemented intoto? Or will only some of the agency's recommendations be implemented?

Merely saying that the guidelines have been implemented is not enough? Is it being monitored on a daily basis? Do you have a full fledged service monitoring department that is constantly checking the levels of customer satisfaction and service provided? Is the staff being retrained in this respect? Or as always is there opposition to such a measure?

What about the subsidiary banks? is there any reason for them to survive as separate entities? Why not merge them into regional banking corporations? State Bank of Bikaner and Patiala could become the SBI (Northern division) and so on?

Spreads in India are rather wide. Is this not unfair to the small depositor? why cannot the interest offered to depositors go up, this will also increase their numbers

Sumit : There are no immediate plans to privatise the public sector banks. However, there is a provision to bring down the govt. share in these banks from a 100% to 51%. Already three Indian banks i.e. Bank of Baroda, Dena Bank, and Bank of India have announced their shar issue to the public. As regards the State Bank of India the general public including institutional investors hold 40% of the equity. I believe this partial privatisation will go a long way in improving service through competition.

William, don't bother! Kakodkarsaheb will, obsfuscate the issue. How can computers improve service? Or is it an admission of the fact that the human service is so bad the machines will be better?

Sumit : The lending rates in India are already freed. And as regards deposit rate the rate for deposit upto 1 year is only laid down by the RBI. There is nothing with wrong with the Central bank of the country being fully owned by the govt. This is the case in almost all the countries including Germany and USA. Our central bank follows a policy of controlling inflation so that the benefits of industralisation and growth of economy are not neutralsied. In India today, the inflation is a little below 7%, and the growth of the economy is around, 7%. I think at this level it should not be difficult for the economy to grow very steadily in the years to come.

I shall be taking only two more questions please.

Good morning Mr. PGK! I have just joined.

Sumit : It is true that we have a large contingent of staff. But you have to remember that we are located at over 8835 centres. And being a older bank in the country our transactions are generally manual which generally requires a larger no. of staff. With the computerisation programme going on in a big way in metros and urban areas, we expect the staff compiment to decrease steadily during the coming years.

What are you trying to change the mind-set of your clerical cadre for better customer service. No amount of restructuring at the top can improve the much sought after service.

Srinat P: The expected result of reduction in the lending rate, is to impprove demand for credit. It will not have much effect on the income of the bank. As all our borrowers do not get the benefit of the prime lending rate. It will not affect our revenues.

Ryan : We have commneced implementaion of the McKinsey report from 1st Nov 1995. All the recommendations have been implemented. However some of the new processes which have been introduced in the areas of lending etc are getting stablised. The implementation of the report recommnedations is already showing the expected results. Thanks to the implementation of the recommendation for e.g of the removing of the no. of layers in decision making, we have been able to increase our business with the top corporates. Similarly at lower levels with the creation of seperate commercial network and development and personal banking network our executives are able to give focussed attention to the customers. All these steps taken are expected to improve our bottom line and will be reflected in our results durind the year. (halfyearly results will be declared on 20th Nov. 1996).

Dear Mr. kadokar >>I have just joined. State Bank of India, RaxaulBranch has frozen my Fixed Deposite Account becaueI am a Nepali Citizen. I was keeping the moneythere for last 20 years. Now I am in Bangkok,my Parents who are the joint account holderthey are facing severe financial problem. Canyou elaborate on this. My savings bank accountat Raxaul Branch is 20/12962 .Name is Abhijit Dey

Do you have any plans to close down unprofitable branches doing almost negligible business?

Mr Kakodkar, what do u think of the pending inter-branch reconciliations ? Do the sharholders will have any surprise by way of huge write offs ?

Will you be implementing the Mckinsey recommendation on lateral entry in SBI?

Mr. PGK will you kindly answer to my questions.

Mr Kakodkar has left. Many thanks for logging in. Please do remember to log into the Chat with FICCI Secretary General Amit Mitra at 2030 hours IST.

MR. KAKODKAR >> YOUR PRESENCE IN THE CHAT ISA GOD SENT OPPURTUNITY. PLEASE HELP MY CASE. CAN STATE BANK OF INDIA, RAXAUL BRANCH FREEZEAN FIXED DEPOSITE ACCOUNT WHICH WAS BEING RENEWEDCONTINIOUSLY SINCE 1978. OPENING BALANCE WAS RUPEES TEN THOUSANDS ONLY. HOW CAN WE GET BACK OURMONEY. MY PARENTS WHO ARE ALONE ARE IN SEVEREFINANCIAL PROBLEM. THE MONEY HAS BEEN FROZEN SINCE LAST ONE YEAR. WE DO NOT KNOW WHAT TO DOPLEASE TELL ME WHAT IS OUR FAULT. WHY DIDSTATE BANK OF INDIA OPENED THE ACCOUNT IF ITWILL SEIZE THE MONEY.

PGK Guruji, hum apne questions ka answer mangta hai!!

PGK Guruji, hum apne questions ka answer mangta hai!!