SBI Mutual Fund, India’s largest asset manager, to go for listing by September: SBI MD Rama Mohan Rao Amara

The war could impact loan books to MSMEs, however, it’s early days yet to quantify. If the war prolongs, the pain in the economy could be deeper. In an exclusive chat with Shweta Punj at the Delhi School of Economics Policy Conclave, SBI MD, Rama Mohan Rao Amara said that Reserve Bank of India may not have the maneuverability to reduce the rates further. India has the resilience to withstand the conflict for another 10-15 days and grow between 6.8-7%. Growth estimates for FY27 will be slightly lower.

How vulnerable is India considering we are importing over 80% of our oil needs. At what point does it get very worrying and how are you looking at the situation at the moment?

So far, it was almost like a Goldilocks kind of situation as far as the system is concerned. As far as the external balances are concerned, with more than $700 billion that can easily cover 10 month’s import cover. So, that was the situation maybe before February 27.

But I think during the last three weeks, obviously, it is a different changed picture. 80% of most of the needs are met through imports from that region, Gulf region, and Strait of Hormuz plays a very, very big role. 60-65% of our LNG, LPG imports happen through that. And then definitely it has an effect on various other things. First of all, the shipping industry itself is under stress. That the shipping prices have increased, the cost of logistics has increased, the insurance cost has increased, availability of containers etc. is a challenge. And then it has a second order effect also.

Like I mean, it is the inflated prices, the increase in the input prices or commodities will feed eventually into the input prices because we are only talking about the three-week phenomena as of now. But if it were to continue for a few more weeks for any reason, which I do not think, but if it were to continue for a few more weeks, we can actually see a very big impact on various sectors.

Oil marketing companies definitely, already, I think the margins have turned negative. They do not have an unlimited capacity to absorb those losses forever, but there can be an expectation that they will absorb without transmitting it to the consumer. But I think there will be a point beyond which obviously they also will have to slowly pass on. And once, if it is an import-intensive industry where predominantly if they depend on imports, then obviously their input cost, the cost of production, everything will increase and to that extent either the margins will suffer or if they are in a position to pass it on to the consumer, then the general inflation will also increase.

So, definitely the imported inflation can increase and which almost has a weightage of I believe 27% in the revised series of inflation monitoring. So, I mean I am hoping that the things will perhaps come to a fruition at the end of -- and then it will take -- I mean even if it stops let us say for 10-15 days, I mean in about a time of 10-15 days, the resilience what we have built in the economy etc. we’ll be able to absorb and still we will be able to meet perhaps the GDP growth rate of 6.8 to 7% what we have estimated for the next financial year will be on the lower side slightly. But if it were to continue for a few more weeks or months, then definitely even to the extent of 0.5% of GDP also can be impacted or it may be at stake.

How severe is the impact likely to be for the MSME sector and the gig economy?

I think we have a significant portfolio of exposure to MSME because that is the largest contributor of GDP and exports. And we are in touch with various industry associations representing the interest of MSMEs etc. One cluster -- within 10-15 days of this war happening, there is one cluster called ceramic cluster in Morbi. That is an area where almost 80% of the tiles of India are produced and the majority of them are also exported. I think they survive only on propane gas and LNG.

And with the shortage of the gas, I think most of the units are shut excepting maybe one or two large units which have some storage of that. And perhaps they are using the opportunity for preponing that annual maintenance. Anyway, they are all continuous manufacturing time, so, they need a break, so they are preponing. Other MSMEs, of course, we are hearing, food processing, the Basmati rice kind of exports etc. or meat exports. Then I think general price increase being faced by MSME industries etc. is there.

I will just take you back to maybe 5-6 months before when Trump tariffs were more than 50% before they were brought down to 25% etc. I think there were some special measures were initiated. So, a credit guarantee backed export credit was also given to the exporters. There was a kind of temporary moratorium for about 6 months on the installment payment on term loans and interest etc.

So, stakeholders are very, very proactive. And this is perhaps one lesson we have seen from the COVID where the country adopted a completely different playbook as compared to rest of the countries and that continues to play. I mean, they have improvised that playbook.

So, already these demands are there from the stakeholders that these measures may have to be again considered for reducing the impact on the MSME.

Does it concern you as a banker that sectoral NPAs could come back again?

So, to the extent we have an exposure there or indirect exposure by way of the MSME units getting impacted, which are in our domestic book, they can have potential impact, but it is too early to quantify. I mean we cannot say like how much will be the impact.

When you look at MSME kind of loans it is not like we are still dependent on the financial statements and we are doing the traditional analysis. That we do for larger exposures now 50 crores and above and up to 50 crores our methodology now is to leverage the digital footprint because lot of MSMEs have -- I mean, they anyway file GST returns, IT returns are anyway there and thanks to the account aggregator kind of architecture that is created it helps us in terms of consuming the financial information from wherever they are banking. And using AI, taking a very nuanced view as to what is the overall aggregate risk and whether we can go ahead with the proposal if we have to go ahead how much is the loan can be given.

A loan proposal of a 5 crore or 10 crore, which used to take 2 to 3 weeks' time minimum, even when we handled it in an efficient manner, is now reduced to just about 1 hour in terms of processing and giving the sanction letter. Of course, the operationalisation of it will take a couple of days. It will involve the visit and documentation. So, we are leveraging the technology fully and we call it as business rule engine. So, the benefits are there. I mean, we are able to see reduced delinquency, better selection of customers.

We have heard the finance minister talk about the need for reinventing the banking system because we have seen household savings move from banks to investing in mutual funds. How are banks making themselves relevant again where savings are concerned and do you see that trend reversing?

No day passes without looking at how much did we grow in the deposits, right?

I think this trend of moving savings to investments, I believe is a structural trend and this is bound to be there. I mean, whatever are the incidents that happen in between, the momentum can change slightly here and there whenever there are some headwinds like war, etc. And we have already seen – there are years where deposit growth was lagging the banking system's loan growth, there were always certain periods when the loan growth was quite robust but over a period of time again the deposit growth used to catch up with the growth rate of loans but that is not the case for the last two years.

With the result, we have seen -- there is a metric called loan to deposit ratio, this is actually creeping up in the system. For the banking system as a whole it is now around 80% plus. We at SBI are better placed much below 80%, so we are cognizant of this trend and we are working on several things.

First and the fundamental thing that will happen is -- to answer your specific query whether it is going to reverse now because of this war, I do not think. Yes, there may be people may reduce the SIP or may stop SIP for a while but again the risk-taking nature is very much there now as part of the customers. So, they would again would like to enter the market etc. So, this trend will continue.

For Viksit Bharat particularly, in order to fund the growth required in the economy where the economy size can be almost 35 trillion dollars by 2047, obviously, the role of the bank is there, banks will have to fund and banks will have to get deposits. So, I think slightly to what is going to happen now has happened in the western countries, the developed economies is increasingly banks may tap the markets, may borrow increasingly from the market by way of bonds or by way of other kind of -- I mean foreign countries, foreign capital by way of ECBs etc., the foreign currency loans or otherwise medium term loans etc., they may do.

So, the percentage of borrowing may increase from the current level. But it is not a cause for worry because there are other measures instituted by RBI in terms of managing the liquidity. So, there is something called LCR, Liquidity Coverage Ratio. So, this actually helps irrespective of the source whether you are tapping a wholesale money or whether you are borrowing to support your loan growth or whether you are taking a deposit from a customer, still you have to comply with the LCR. So, that is the countervailing force in terms of even if there is change in the liability profile.

Only one point, while we know that this is the way forward, I think we have initiated a number of measures. So, is the case with number of banks, customer specific kind of products are there, for the youth there are special products are there and for senior citizens who are looking for returns or interest income, definitely that kind of products are there and increasingly to attract the Gen-Z we are working on the digital. So, it is a multi-pronged approach I will say.

What is your outlook on interest rates? Considering imported inflation, considering geopolitical risks.

I think again this is like a pre-Feb and post-Feb kind of phenomena. Pre-Feb I think of course, we had a monetary policy committee which took a call of not changing the policy rate, but at least under those circumstances there was hope that actually there may be a rate cut when the situation improves, right, but while RBI wanted to maintain a neutral stance to switch either way depending on the need. But now for the reasons what they said, the impact of the war on the imported inflation and its propensity to increase the overall inflation, this may create a kind of situation where RBI may not have the maneuverability to reduce the rates further till the overall situation improves and till the economy absorbs the impact and becomes more resilient.

I believe, at least my personal view is that there may not be scope for rate cuts at least in the ensuing couple of quarters. If the situation improves or if for any reason like H2 in the next financial year growth is on a lower side for any reason, then obviously RBI will be looking at the inflation and growth dynamics to take a call.

Even if the war, say, ends in the next one week or 10 days, how long do you think will it take for the situation to normalise?

If the war were to end very, very soon, we will have enough capacity, capability and resilience to come back. But as I said, if it were to continue for a longer period, then obviously impacts will be there.

There have been concerns around AI impacting jobs, how do you see the nature of jobs changing with the advent and usage of AI in the banking space? And there have been concerns about job losses?

I think as I said, I mean the usage of particularly agentic AI etc., which are completely autonomous, is at a nascent stage. I mean maybe one or two use-cases have already been deployed, one of the large NBFCs says that actually their event, credit delivery is also happening through the agentic AI, when their chatbot interacts with a potential new customer, but it is still at a very nascent stage.

I think maybe -- I look at it more as a productivity tool rather than a replacement.

You require people with a different caliber to understand the build of the model, to monitor how the performance is there and to make the tweaks. So, while a few jobs may be eliminated, maybe the builder of the model positions may be eliminated, there will be somebody who has to validate, who has to understand and who has to make. So, I think there was a slight change in the profile of the workforce rather than a complete elimination or a reduction.

Is the war prodding you into a rethink where global footprint is concerned? Any plans for the Gulf region specifically, that you might be putting on the back burner?

No, not at all. I think we don’t change our strategy based on what is happening in the short term. While of course, we monitor the developments regularly, and some of the activities can be undertaken even from India actually. While the physical locations are there, some team can be moved which we have done already. To ensure their safety, we moved some of the teams to India, and they continue to operate from here. So, it is business as usual, as long as the banking industry is operating in those geographies. I think, if we have to take a call of scaling down or anything, that will happen only after steadying, and if the war were to continue for a longer period. Otherwise, as of now, no change in terms of what is happening in short term.

SBI had said that they will work on listing a subsidiary every the year. Where are we on that?

We already filed the DRHP for the SBI Mutual Fund. Intent is to go for listing by September, as long as the market conditions are conducive. And we only have one more subsidiary called SBI General. And there we want the subsidiary to reach some critical signs. We want them to improve, and a call will be taken only at the material time when it is ripe for listing.

And how about the valuation, what kind of a valuation are you looking at for the SBI Mutual Fund, considering ICICI is also there competing in the same space?

I am not privy to the valuation, but that will happen over a period of time, once the DRHP is signed off. But obviously, they will look at the benchmarks, what are the other prices other AMCs are able to get when they went for listing. While just for the record, SBI AMC is number one in the entire industry, with a AUM of $4.5 billion.