Speaking to ET, Setty said SBI expects to gain 16-17% market share in small and medium business lending from 13% at present. He ruled out aggressive cuts in deposit rates, noting that exporters face tariff challenges due to geographical diversity.On PSU bank consolidation, he said SBI would prefer to grow organically as it adds ’10 lakh crore business every year.
CS Setty, chairman of the country’s largest lender State Bank of India (SBI), expects a structural transformation of banks’ balance sheets over the next decade as customers diversify their savings into mutual funds, insurance and pensions, while insisting that cheap deposits are crucial. In a conversation with Sangita Mehta and Joel Rebello, Setty shared his views on the impact of US punitive measures on exporters, credit growth, asset management, M&A financing, IPO valuations and lending to MSMEs.
Edited excerpts:
Do you believe there is a bubble in the IPO market?It’s important to realize that we need a lot of good companies to invest in today. A lot of money is flowing into the stock market. If there are not enough in the universe of investing companies, investors invest in the same companies repeatedly. I think it is important that diversified companies are listed on the stock exchanges.
Are issues mispriced?
Awards and ratings are like beauty in the eyes of the beholder. So it’s a matter of who is looking at that investment.
Do you see any impact on exporters as a result of tariffs?
It’s too early to judge. Surprisingly, many exporters are able to diversify their geographic markets in a short time. Some sectors, especially maritime, which have high exposure to the US, are experiencing slowdowns as supply chain movement requires certifications and approvals. We have not seen a major impact on our portfolio yet. It could be because they can diversify their geographic markets. The real big impact will be felt in the next quarter. I also do not rule out that there will be no demand for the Reserve Bank of India’s (RBI) restructuring plan. We are in discussions with the RBI to extend the relief measures for a quarter beyond December.
What is your outlook for growth and inflation for FY27?
We expect growth to exceed 7.5% and inflation to be below 4%.
There is a lot of buzz about the consolidation of PSU banks. Is there anything on the cards?
There is no formal discussion about this. SBI is a fairly large bank with good potential for organic growth. We add close to Rs 10 crore in revenue every year. Our preference is for organic cultivation.
Is there another subsidiary IPO before 2027?
Unlikely. Our focus is to complete the IPO of SBI Mutual Fund within 12 months. No plans for other IPOs or stock sales.
Will SBI need fresh capital?
Not for the next five years. We have raised 25,000 cr QIP (Qualified Institutional Placement) this year. With a capital to risk weighted asset ratio (CRAR) of 15% and common equity Tier 1 (CET1) of 12%, we can support credit growth of Rs 12-13 lakh crore over five years without any equity dilution due to the IPO of the mutual fund. Even considering expected credit loss (ECL) standards, we have sufficient buffers. Our annual profits of Rs 70,000 to Rs 80,000 can support this growth.
Is the annual net profit target ultimately Rs 1 lakh crore?
There is huge potential in this franchise to reach that level. We would like to be the first bank to reach that level. We believe we have the potential to do so.
What gives SBI the confidence to predict credit growth of 12 to 14% while RBI expects a moderation in economic growth?
Our credit growth of 12 to 14% is primarily driven by RAM – retail, agriculture and MSME – which represents 65% of our domestic portfolio, and we are uniquely positioned due to the vast internal space available to support this.
How soon do you see SBI overtaking HDFC Bank in the MSME lending space?
That’s not the goal. Supporting MSMEs (micro, small and medium enterprises) is a core part of SBI’s strategy. Over the past three to four years, we have simplified the lending process, implemented structural changes, opened specialized SME branches and deployed 2,000 dedicated relationship managers – the largest in the country. We also introduced a business rules engine for loan assessment, using goods and services tax data and a 15-year default history. Approvals now take 20 to 25 minutes, provided the customer consents online. This fast turnaround time, along with competitive pricing, are the main reasons why we are rapidly gaining market share. We hope to increase our share of the lender universe from 13% now to 16% to 17%.
What about the corporate loan portfolio?
Among the big banks in India, we probably have more opportunities to grow corporate lending. We achieved approximately 7% revenue growth in the second quarter and we can expect lower double digits this year. New-age sectors are doing well. Renewables continue to grow, thermal energy is making a comeback with capacity expansions and refineries are investing significantly. Roads and data centers will also provide more power.
What about large investments?
Large-scale investments in sectors such as steel and cement have yet to pick up, as these are closely linked to continued consumer demand. We believe that once consumption stabilizes, companies will start investing. Demand has been strong over the past two quarters and the fourth quarter should remain robust as it is a busy season. The real test will be the first quarter, which is usually a tepid quarter, but we expect consumption to continue for some time.
How will SBI approach M&A financing?
M&A opportunities boost confidence in Indian banks. We will have a board-approved policy after the RBI guidelines are finalized. A dedicated unit within corporate banking will work with SBI Capital Markets. We don’t mind working with multinational banks. We will certainly be risk conscious. The intention is not to grow in size or build a book. You cannot build a book about acquisition financing. It’s an opportunistic transaction.
Will SBI cut deposit rates?
There is a scope. We recently implemented a calibrated reduction for a number of maturities. But aggressive rate cuts are unlikely.
Will CASA remain critical?
CASA (Current Account Savings Account) is critical, but Covid levels of 45-46% will not return. Before Covid, our CASA was 36%; today we are at 39% despite strong growth in fixed deposits, which is a good performance. Savings accounts are service sensitive, not interest sensitive. Checking accounts are also service-oriented and require offerings such as cash management, liquidity management and payment solutions. RBI expects banks to improve cost efficiency and not rely solely on the spreads they earn from lending to customers. Profitability must come from operational improvements, not just spreads. We work on process efficiency to reduce the cost-income ratio. As part of our project SARAL, we are working on simplifying know-your-customer (KYC) into one process for all products, which will take place in April 2026.
How do you overcome deposit mobilization challenges given that tax incentives favor mutual funds?
Tax or no tax credit, intuitive asset allocation happens at the individual level. People invest money in investment funds, insurance, pension funds and bank accounts. This is irreversible. Nevertheless, our savings bank balances are growing and 65,000 to 70,000 new customers are added every day. Early savings for new generation employees often go to investment funds. But as income rises, most of the allocation shifts to bank deposits – be it savings or fixed deposits. This means that bank deposits are here to stay, even if growth will be modest, and not 15-16%. Over the next five to ten years, bank balance sheets and liability structures will undergo a structural transformation. Like Western countries, banks will increasingly gain access to markets through debt instruments.
Does this provide an opportunity to focus on asset management?
We are very serious about asset management. Today, we have assets under management (AUM) of Rs 1 lakh crore, of which Rs 75,000 crore is investment AUM. We aim to take this to Rs 15 lakh crore by 2030, with Rs 4 lakh crore of investment. Our approach is not focused on aggressive sales; we respond to the differentiated needs of our own customers.
RBI now allows equity financing up to Rs 1 crore. Has that been picked up?
We were not active in this area before. But now that the limit has been increased to 1 crore, we are working on a product. It fits well with our asset management offering. We are already lending against mutual funds and will soon add shares on the same platform.
Does your lending take climate risks into account, especially when it comes to agricultural loans or contract farming?
We have an exclusive Environmental, Social and Governance (ESG) department led by a senior executive. It sets internal targets for Scope 1 and Scope 2 emissions; Scope 3, where customers adopt the climate transition, will take more time. Our goal is to make 7.5% of our portfolio green by 2030; we are currently at 2 to 3%. This requires active engagement with customers in areas such as green steel and decarbonization. Although climate risk is part of our overall approach, it is not yet built into the credit ratings. We have not introduced incentives or punishments; for now, it’s more about advocacy and understanding their transition plan.
What is your view on increasing foreign institutional investor limits for PSU banks?
A higher limit would add value. Investors want room to maneuver, even if the existing limit is not fully utilized at some banks. We have submitted this to the government, the largest shareholder of the PSU banks.
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