PM Modi saved State Bank of India from a certain death

The inexorable passion with which Prime Minister Narendra Modi carries out his course of action with the vision of ‘Rashtra Nav Nirman’ is anterior to the dynamic changes taking place in the nation. At the heart of this remarkable boom lies the growth of public sector enterprises.

These organizations were earlier in a deplorable state of affairs due to widespread ‘Red Tapism’ prevalent in the system. The outcome of this marvellous upsurge in the economy can be witnessed by the superlative growth which the country clocked in the previous decade.

Consequently, initiatives such as Make in India, Stand-Up India and Start-Up India amongst others, have been instrumental in creating a favourable environment for triggering sustainable growth. Despite the prolonged global recession, adverse geopolitical development, deplumation of democratic values, energy shortages and commodity volatility, India is on the right track to becoming a global leader.

India is at the helm of economic growth, now accredited as the fastest-growing economy in the world, with a 5.5% average gross domestic product growth, despite the pessimistic global landscape. As per the Reserve Bank of India, the Real gross domestic product (GDP) is expected to grow by 7.1 per cent in 2022-23.

State Bank of India on the Top

Against the backdrop of this subtle change, the State Bank of India bagged a net income of Rs 14,752 crore in quarter two of the current financial year. The biggest public sector bank in the nation overtook the gigantic Reliance Industries Ltd (RIL), which has been at the top for more than a decade. RIL witnessed a downturn of Rs 4,039 crore in the windfall tax of its overseas business during the present quarter. Taking the second spot, RIL’s quarter two profit stood at Rs 13,656 crore.

The Chairman of the State Bank of India, Mr. Dinesh Kumar Khara put forth the view that the net income of the bank would have been much higher had they incorporated the lender booked treasury profits during the quarter.

As per the report of Times Now, the bank reported a notional gain on its treasury investments, which stood at Rs 2.85 lakh crores. The Operating Profit of the company in quarter two of FY23 stood at Rs 21,120 crores which upsurge by 16.82% from Rs 18,079 crore in quarter two of FY22.

The State Bank’s net interest income pitched up to Rs 35,183 crores, i.e., up by 12.83% from Rs 31,184 crores from the previous year. The Net interest margins improved by 5 basis points every year and 32 basis points on a sequential basis, the bank said in a statement. Credit cost improved by 15 basis points to 0.28% for the second quarter.

However, the Operating profit during Q2 of the current financial year was reported at Rs 21,120 crore, an increase of 16.82% YoY from Rs 18,079 crores last year. The bank’s credit growth during the period was 19.93% YoY with domestic advances growing by 18.15% YoY. Furthermore, India’s largest lender also reported a pre-provision profit of Rs 21,220 crores during the period as compared to Rs 18,079 crores in the same period last year.

State Bank of India: From tatters to the top

Before the 2014 period, the Gross Non-performing Assets/ bad loans of the banking sector stood at Rs 2, 43,210 crores. Out of which SBI had the highest share of gross NPAs at Rs 67,799 crores followed by PNB at Rs 16,596 crores, and Bank of Baroda at Rs 11,926 crores.

Conversely, the situation changed for good after the Modi government came to power. However, the transition was not an easy nut to crack, as the State Bank continued to see an upsurge in the NPAs but considering the inflationary rate, the situation can be said to improve over the period. The State Bank reaped the benefits of national policies such as Jan Dhan Yojna, Goods and Service Tax, Demonetisation, etc., and the like.

Speaking to reporters on the side-lines of FIBAC 2017, organized by the Federation of Indian Chambers of Commerce and Industry (FICCI), the Chairperson of the State Bank, Rajnish Kumar mentioned, “The two major economic reforms, namely demonetisation and Goods and Services Tax (GST), have given a big boost to digital transactions. There has been an increase in the tax base, with more money coming into savings accounts. Slowly, the mindset is also changing. Any such reform has a long-term impact and we must be a little patient. Following the impact of the two reforms, there will be improvement.” Consequently, the optimism that the then Chairperson of the State Bank had can certainly be said to reap results for the public sector bank.

Rationale behind the resurgence

The journey of transition for the State Bank from the previous low to an all-time high has been a roller coaster one. The policy at the national level has been significant in facilitating the growth of the State Bank, though not always with a direct impetus from the government.

The Modi-led government at the Centre played a key role in creating a better environment concerning ‘ease of doing business.’ India ascended 14 rungs in the World Bank’s ease of doing business rankings last year to 63 among 190 countries; becoming one of the top 10 most improved countries for the third consecutive year. Ever since the Modi administration first came to power, India’s ranking has improved by 79 places from 142 in 2014 to 63 in 2019, a record for a major economy.

Digitization: Techno Savvy fast-payment platforms

The major boon to the intimidating financial sector of the previous decade was subsidized by the digital innovation revolution. The Unified Payment Interface (UPI) has made the largest impact on democratizing faster payments and played a pivotal role in shaping the Future of Value Transfer.

Unified Payments Interface is an instant real-time payment system developed by the National Payments Corporation of India (NPCI). It symbolizes the vision of the Modi government to facilitate the growth of digital payments. The interface facilitates inter-bank peer-to-peer (P2P) and person-to-merchant (P2M) transactions.

According to the statistics released by NPCI, UPI volumes have nearly doubled since the past year to over 6 billion transactions in July 2022, with a transaction value of over INR 10 trillion. The primary beneficiary at the helm of this exponential rise in digital payments has been the State Bank of India.

The reason is very obvious, as the bank has the largest network in the nation and has the largest customer base amongst digital users. SBI Pay and YONO Banking system have been instrumental in capitalizing on this growth.

Improved Cash flow from Operating Activities

The effective management of the cash flow well facilitates the smooth functioning of an organization. It helps to predict the money required for the business. A glimpse of the Cash Flow of the State Bank of India depicts the growth story of the bank.

The position of ‘Cash & Cash Equivalents’ rose to a high of 394,552.32 for the year ending in March, 2022, from the previous figure of 171,971.65 at the start of March, 2018. Similarly, the ‘Net Cash Flow from Operating Activities’ also rose from Rs. 58,415.45 for the year ending in March, 2022, from the previous negative of Rs. -85,425.25 at the start of March, 2018. Therefore, the improved cash flow has proved to be instrumental in infrastructural growth and better services by the bank.

Beyond the Red Tape: Better Lending Mechanism

The bank has been successful in garnering public money owing to its magnanimous banking network throughout the nation. The enhanced liquidity flow discounted the growth of the bank and thereof, furnished better credit capabilities. That is to say, the State Bank is thriving in terms of returns on credit.

As per reports, India’s largest lender expects corporate loans to grow at a pace of 14% to 15% this financial year and at about 12% on average over the next two years. Further, the bank has seen a 21% increase in corporate credit in the July-September quarter. In addition, the NARCL has made 14 offers roughly for 200 billion rupees ($2.46 billion) in loans. These sales are in various stages and SBI’s share in the pool is nearly 20%. Therefore, these are signs of a healthy lending landscape which the bank offers in the future.

Modified Policy: National Guidelines on Responsible Business Conduct (NGRBC)

Consequently, the major growth that the State Bank of India witnessed can be indirectly accredited to the policies of the Prime Minister Narendra Modi to have a better environment for the public sector undertakings. Prior to 2014, the public sector banks which had always been in the past subjected to the vices of red-tapism, excessive government interference, lack of policy implementation, strikes, unionism, etc., and the like; are now not only providing better facilities than the private banks but also meeting the requirements of sustainable development.

On the contrary, the Modi government came up with the National Guidelines on Responsible Business Conduct (NGRBC), published by the Ministry of Corporate Affairs, Government of India in March, 2019 incorporating Nine (9) principles. The NGRBC was pivotal in the drafting of the SBI’s Sustainability and Business Responsibility (BR) Policy. Thereby, ensuring the revamping of the ‘Avtar of the SBI’ and enhancing its economic, environmental and social performance in an integrated manner. The policy was in line with the internationally accepted standards and best practices for the purpose of identifying, assessing and monitoring environmental, social and governance risks with respect to the Bank’s business operations.