State Bank of India (SBI) has an exposure of $212 million linked to the fraud perpetrated at Punjab National Bank (PNB), SBI Chairman Rajnish Kumar said, adding that the exposure was mainly to PNB and that he did not see any liabilities accruing to SBI as a consequence of the fraud.
“We do not have exposure to (Nirav) Modi. My exposure is to PNB,” Mr. Kumar told mediapersons before inaugurating the Global NRI Center at Kochi on Friday. “We are not worried... the regulator is there, judicial system is there... there is also a categorical statement by the MD of PNB, that all bonafide transactions... they will honour. This is something which will get sorted out between the banks.”
PNB, India’s second-largest lender, was defrauded of ₹11,500 crore through issuances of letters of undertaking (LoUs) in a scam whose dimensions are still unfolding.
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'No lapse on our side'
Speaking on the sidelines of the press meet, Mr. Kumar said of the SBI group’s $212 million exposure to PNB — connected with the LoU transactions initiated on behalf of firms controlled by Nirav Modi — $90 million was made through SBI’s Mauritius subsidiary. “There has been absolutely no slip up or lapse from our side. We have followed standard operating procedure in this regard.” He added that the bank was “100% confident” of recovering the amount.
Mr. Kumar also separately said SBI had “a small exposure to Gitanjali Gems,” without providing additional details on the nature or extent of that exposure.
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He also said that SBI’s exposure to the gems and jewellery industry was less than 1% of the total domestic loan book.
“My domestic loan book is ₹16 lakh crore and gems and jewellery sector exposure is less than 1%,” he said.
The SBI chief observed that risk management in banks was a continuous process.
“We have to keep updating it. Operational risk is unknown, while credit risk is a calculated risk. In operational risk —what hits and when, is unpredictable. The question is what to do when every level of security is breached. That is unfortunate.
“We have to constantly review, upgrade, look for gaps in processes, compliance standards, effectiveness of audit systems... Banking is a complex business. Volumes are large. Risk culture, compliance culture all need to be good.”
Impact of norms
Asked about the impact of recent RBI norms to accelerate recognition of bad loans and initiation of insolvency proceedings he said, “Guidelines have made it easier... there are two key elements to the new norms: whatever the bank feels is sustainable debt needs a rating; two, unless you get back 20% in payment, you can’t upgrade the asset.”
Asked if this would add to the bank’s provisioning burden, he said, “It would not make much of an impact.” He added that exact numbers were being worked out on the nature of the impact.
Mr. Kumar said, “It is important that there are adequate number of benches at the NCLT.” A majority of insolvency cases, taken to the NCLT in the first list shared by the RBI, would likely see completion by the first quarter of FY19, he added.
Recognition of stressed loans at SBI was ‘almost over’, the chairman said adding, “From next year onwards, 2018-19, we will enter into what I call the normal position. Normal for me is 2% or below on gross fresh slippages.”
On additional capital that the government is set to provide public sector banks, he said the amount accruing to SBI would be meant for growth and expansion. “We will raise ₹20,000 crore from the market. The recap amount of ₹8,800 crore is towards growth. It is not needed for provisioning.”
SBI would also look to monetise some of its non-banking assets by FY20. “FY2018-19 will see no IPO from us. The year after, ie FY20, we will go for IPO [of some of our assets], because we believe we can add lot more value before going for IPO. Three companies are prime candidates for the IPO — SBI MF, SBI General, SBI Card.”
Earlier, the bank unveiled its Global NRI Center to help centralise NRI operations for the bank across the country. The centre is meant to be a single-point of contact for all NRI banking related services. To further enhance the experience for its 33 lakh NRI customers, SBI also introduced services such as wealth management, SBI Intelligent Assist, free post box service, SBI Mingle and a remittance facility for U.S.-based customers.
As of January 2018, the bank had an NRI deposit base of ₹1.95 lakh crore.
Asked if interest rates, especially or home loans, would start moving upward after a period that saw declines, he said, “There is no scope for bringing it down further. Whether it will go up or not, we will review the position when our asset liability committee meets this month.”
SBI had merged 5 of its associate banks and Bharat Mahila Bank with itself earlier this financial year. Following the merger, Mr. Kumar said, the branch rationalisation process was ‘almost complete’. “We rationalised about 1,600 branches.” He added that headcount since the merger had dropped from 2.78 lakh to 2.65 lakh currently. “About 3,500 employees opted for the voluntary retirement scheme that was offered. The remaining reached the age of superannuation.”
On the changes to the minimum account balance that customers are required to maintain, he said that a review was going on for the rules determining balance effective April 1. “Monthly average balance requirements may remain the same. Anyway our charges are amongst the lowest.” He highlighted the fact that SBI had 14 crore accounts that were Basic Savings Bank Deposit accounts which attracted no penalties. “A normal savings bank account yields us no more than ₹120 a year. If that customer does 5 transactions in a month using the SBI debit card but in another bank’s ATM, our outgo is ₹1,080 a year. Look at the comparison.”
He added that he expected growth in the infrastructure sector to pick up in fiscal 2018-19. “Things will improve in the roads sector and in renewables. Government spends are increasing.”
(With inputs from G. Krishnakumar. The writer was in Kochi at the invitation of SBI)