To make SBI leaner, Pratip Chaudhuri is slashing costs for consumers, pruning businesses

MUMBAI: SBI BSE -1.44 % Chairman Pratip Chaudhuriis slashing costs for consumers and shutting or pruning unprofitable businesses as he tries to make the country's biggest bank more nimble-footed than private players and steer it away from the legacy of unviable ventures.
One year after SBI forced rivals to respond by slashingprocessing fees and doing away with prepayment penalty on home loans, the bank is threatening a repeat, this time in the hotly-contested market for corporate loans.

SBI has scrapped prepayment penalty on term loans in a bid to attract more borrowers in an uncertain investment climate caused by a country-wide crackdown on corruption in mining and government flip-flop on land purchases. The home loan cuts triggered a surge in disbursements for the bank, and Chaudhuri is hoping for something similar to happen in the corporate loan market.

"I am against any sort of prepayment fee. Let it go. This will also keep us on edge because you have to be constantly doing well," he said.

SBI's corporate book rose 15% y-o-y to Rs 46.60 lakh crore at the end of September, and it is the biggest lender to Indian companies. Removal of penalty is likely to lead to a slugfest with other private and public sector banks that charge a penalty, and trigger a price war similar to what happened in the home loan market.

BANK TO FOCUS ON RETAIL LOANS & SMES

"Although in the immediate future this may impact their fee book, in the long run it will help in creating a goodwill gesture just the way it has been for home loan borrowers," said Hemindra Hazari, head of research (institutional equities) at brokerage Nirmal Bang Equities.

Rivals such as Axis Bankand ICICI Bankwere forced to respond to the removal of penalty on home loans last year, leading to a rise in disbursements across the board. For SBI, the gains have been staggering, with disbursements more than doubling to Rs 150 crore per day, or about Rs 37,000 crore per year.

When the bank was lending at 10.75%, the disbursals were about Rs 65 crore a day. Today, at 10%, the disbursals are about Rs 150 crore, or about Rs 37,000 crore a year, Chaudhuri said. "There is appetite for home loans, it is concentrated in a few pockets. In Pune, Hyderabad, Bangalore, Noida, NCR and Mumbai, they are mainly high-ticket loans," he added.

Chaudhuri said the bank's focus will be on retail sectors like home and auto loans and loans to small and medium-scale sectors. The slowdown in the economy and the weak investment climate are likely to hurt corporate loan demand for some time, he said. "All the areas where there are pricing compulsions and pricing restrictions are not seeing new investment. Be it fertiliser, be it refinery and oil marketing. So where is the foreign investment coming in? In cars, television, where there is freedom to set the price. This is very important," he added.