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‘Idea is to strengthen bank’s balance sheet’

Govt. spending spurs loan demand, but private investment yet to revive: SBI MD

February 17, 2019 10:32 pm | Updated 10:32 pm IST

From changes in functions and risk assessment processes to accelerated provisioning, Arijit Basu, MD, State Bank of India, explains the steps the country’s largest lender has taken to strengthen the balance sheet: Excerpts from an interview:

SBI has recorded corporate credit growth of about 20% y-o-y till December. Where is the demand coming from?

One is due to low base. Two, we are extending loans to very well-rated and less-risky firms. Growth has come from government’s infrastructure spending. We have extended loans to firms like NHAI, SIDBI, Nabard, PFC, REC etc. Other than that, the firms we have given loans to are very good names like HDFC or Bajaj Finance.

Is the momentum continuing this quarter also?

We have a pipeline, like highway projects, where we have virtually government guarantee and we have sanctioned a few loans, some of them may get disbursed.

But may be we will not end up with 20% growth. Our guidance is somewhere in the region of 12-15%. Retail has grown very well, and also home loans. For retail, we will end the year with 18-20% growth. The aim is to ensure that the quality of the assets improves. For any new exposure we try to make sure that we should not be coming to a similar situation after two-three years.

What steps is the bank taking to ensure this?

We have introduced a lot of risk mitigating processes which is a major structural change this financial year.

We have re-organised our lending structure and introduced risk mitigants. There is now a credit risk review committee for loans above ₹10 crore, before it goes to the sanctioning committee. They do a risk heat map, whether it is high risk, low risk, etc. They can even give a no-go. This is an addition to the credit risk assessment. This committee is to look into the proposals. The bank’s main focus is strengthening of the balance sheet. The idea is to prepare a balance sheet so that it can absorb any shock.

How will you do that?

You can achieve that by making upfront provision. In the third quarter, we have utilised ₹5,800 crore of earnings to make accelerated provisioning which we were not required to do. IL&FS for example, we had limited exposure, but whatever exposure we have at the holding company level, we felt that the haircut will be 50%. So, instead of 15% which is all that we were required to do, we have provided 50%. Similarly, we were required to make 40% provision for the power sector projects, but we have made 50% provisioning as we estimate the haircut could be 50%. We will continue to do this process till the balance sheet becomes so strong that whatever happens it will not impact our [profit and loss account].

Slippages have been lower than last year. What is the guidance for this year and the next?

This year, slippages are significantly lower. Corporate slippages will be drastically lower compared to last year. Up to December, corporate slippages were less than ₹8,000 crore and total slippages were around ₹30,000 crore. In FY18, corporate slippage was about ₹80,000 crore. This year, total slippages should be significantly lower given the position achieved till Q3 . Next year, slippages should come down even more. Even if there are unexpected events, slippages will be within the guidance.

What organisational changes has SBI undertaken to address asset quality issue?

We had expanded the corporate accounts group (CAG) to 8 branches in different cities, handling about 500 accounts. Many of these large corporate slippages happened from CAG.

The main purpose for starting the CAG was for better service and solutions to the best-rated and the most-valuable firms. But because CAG was expanded to a level where there were a number of stressed assets, this could not be performed effectively. Now, we have retained only blue chip firms — AA or AAA — in CAG. There are now just four branches. The number of accounts has come down from 500 to 200.

What happened to the other companies in the CAG?

We have formed a new group called commercial clients group — CCG. There are 2,500 corporate accounts in the bank, out of which 200 are in CAG and the remaining are in CCG.

Is private investment rising?

We have not seen that much of a revival in private investment till now. Whatever is happening in the private side is linked to the government.

What kind of loan growth from the corporate sector do you expect for next financial year?

At the moment we are not seeing very different from this year, around 12-15% growth for corporate loan.

Do you have any plans to raise capital?

We are way above the regulatory capital requirement. We are on track to come back to a period of normal regular profit. That plough back will come. At the moment we don’t need growth capital. We have an enabling resolution as approved by the board for raising ₹20,000 crore of equity capital by September. Depending on the market conditions, we will take a call on raising the funds.

How many large accounts do you expect to have a resolution by March 31?

The IBC legislation, I think, is the most significant legislation of the present government. The impact is not only what you are seeing on the cases that were referred to the NCLT. The entire purpose is that many accounts should not go to that stage. The threat that promoters could lose the account if they go to NCLT, is enabling banks to have much better resolution even outside NCLT. We are hoping that at least 2-3 high value cases happen by March 31.

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