And welcome to the India Today Business Studio here at the World Economic Forum in Davos. I'm Sidharth Zarami, and joining me now is Challa Setty, the chairman of the State Bank of India. Sir, a very warm welcome. We need all the warmth here in our studios. But thank you for making the time. The backdrop for this conversation, this first question that I really want to ask you is that the world is in trade turmoil. There are geopolitical shocks. Every two days or every day, a CEO all across the world wakes up, reads the headlines, and then figures out what is going to happen to his business. In all of this turmoil, one key message that keeps sticking out also from foreign CEOs is India's resilience, political stability, and the maturity of its fiscal, monetary, and administrative policies. How do you yourself see the current situation of India vis-à-vis the rest of the globe?
First of all, thank you very much, Sidharth, for having me on your show. India, I think this resilient India story is talk of Davos, you know, this time and even the last year when we were here. While geopolitical disruptions, tariff-related issues, trade dislocations, all of them have put a lot of pressure across the globe, and India is no exception. But the way India managed in terms of fiscal prudence, in terms of ensuring that sufficient liquidity is there in the system, and some of the heavy lifting done by the government of India in terms of supporting infrastructure — all of them indicate, even if you see the latest IMF estimates, our own estimate also puts India's GDP growth around 7.5%. I think it's a very resilient story, and I see that both calendar year 2026 and fiscal year 2027 are playing out very well for India. The banking system is robust, and we expect that the government continues to have credible fiscal management, and that gives us confidence that India's resilient story continues.
If we take 2008 as the cutoff year, from there we have seen every few years there is a global shock which then has some amount of impact on India, some spillovers. In 2008, there was the great decoupling theory that we used to talk about it before that. I want to follow up your observation that given the current global context, is there any spillover risk that we also need to keep in mind with regard to the Indian economy?
So the interconnectedness has increased over the years. If you really see, the 2010 decoupling story did not play out as much as we wanted, right? We were also impacted, and we had undertaken one of the largest cleanups in the banking system in terms of asset quality reviews and recapitalization of the public sector banks. But in the last decade, what we have seen is that a lot of legislative measures, a lot of fiscal measures, and also in terms of strengthening the banking system from both the regulatory side as well as the banking management side has made India — I can't use the word 'decoupled' from the rest of the world, but I think much more, as we mentioned right in the beginning, much more resilient to handle these disruptions.
Mr. Setty, our re-engagement with global trade but in a different context. Over the last few years, we are pursuing currently in conversations for more than a dozen trade deals. Some have reached fruition, a big one with the European Union is perhaps around the corner. The United States is a work in progress. What does this mean for Indian industry in terms of newer opportunities, and for a lender of your size and stature, how do you intend to support the momentum that this kind of new trade engagement is likely to generate?
So new trade engagements: the way India pursued these free trade agreements to pursue something which is win-win — it's not that you are giving away something or not giving away at all. That approach has now moved to a more pragmatic approach: what kind of trade facilitation can be done while using the FTAs? Still, it is in the hands of the industries, right? The government can only have a free trade agreement, but how do you use that FTA is up to the industries, and I'm sure that industry bodies are working on that. Also, if you see, the free trade agreements have helped us in terms of geographical diversification of trade — not necessarily that you are highly dependent on exports to one particular country or a group of countries. Now we see much more diversification happening. That is one part. And on the trade finance part, we are still the largest trade finance provider to the Indian industries today. Out of our $90 billion overseas book, almost 30 billion, 25 to 27 billion, is a trade book, predominantly funding the Indian corporates accessing overseas trade finance.
All right, that's a very significant number and point that you have shared with us. You spoke about our high growth rate of 7.5%, inflation at pretty much historic lows. The monetary system has responded. RBI has eased rates. Liquidity support has been provided. What's your base case for the cost of capital going forward for pretty much every class of borrowers in India?
So the policy rate cuts of almost 125 basis points in the last 12 to 15 months have helped the softening of interest rates on the loan side — whether it is retail loans or corporate loans. Broadly, I think there is a softening. On the corporate side, there is still, we have the concept of MCLR, the marginal cost has not come down as much as we wanted or the industry wants, mainly because the cost of deposits has remained more or less sticky. As the numbers indicate, industry-level good credit growth and deposit growth is slightly lagging, which is putting pressure on banks not to cut interest rates as much as they desire on the deposits. Having said that, I think some of the monetary measures, some of the fiscal measures are helping to achieve a good credit growth which I believe is sustainable, maybe in the range of 12 to 14% system-level credit growth.
On the deposit side, and I'm not asking you this as an SBI-specific question, but broadly speaking at the macro level, at the policy level, is there something that you feel needs to be done? Because I would say, and you are the expert on this, that it seems to be that there is a bit of a structural break with the past behavior of fixed deposits. Although by quantum they still remain the largest, there is a trend shift that seems to be happening. So does the system need to respond differently?
Yes, this — I've many a time spoken on this. The structural shift which you mentioned is definitely happening. As economies mature and households' and individuals' ability to access various non-banking financial savings instruments, this structural shift is definitely here to stay. How banks have to structure their balance sheets now — in my view, the shift is almost irreversible. There could be some flows happening; the equity market is doing well, there will be larger flows, or if not doing well, smaller flows, but flows definitely will be there. If you see, bank deposit growth is at 1x, mutual fund growth rate is 3x. That means banks probably have to access the markets more in terms of funding their asset growth. Some of this money which is moving to pension funds, mutual funds, insurance definitely has to come back to the real economy and support banks raising capital, particularly from the debt capital market.
Okay. So going forward in 2026, what is the biggest challenge to sustain the strong credit growth momentum, the numbers that you also gave? Is it a demand or tightness in funding? What would you say will be required to keep it sustained for the foreseeable future?
