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Jan 30, 2013, 10.47 PM IST | Source: CNBC-TV18

Ahead of industry in realising bad assets: SBI

SBI chairman Pratip Chaudhuri speaking to CNBC-TV18 hinted customers could expect a base rate cut, reduction in some spreads or maybe a combination of both.

With the Reserve Bank of India cutting policy rate, institutions are expected pass on this benefit to consumers by offering better rate of interest on loans. Banks are willing to tweak their loan rates and borrowers may find a case for transmission which in turn will boost economic activity, say bankers while speaking to the press on Tuesday.

SBI chairman Pratip Chaudhuri speaking to CNBC-TV18 hinted that customers could expect a base rate cut , reduction in some spreads or maybe a combination of both.

Given the surplus cash this state run lender holds, the impact reducing interest rate would be margin neutral.

"We would benefit by about Rs 250 crore per annum on account of cash reserve ratio (CRR) cut and Rs 50 crore per annum from the repo rate cut. As long as the benefit that we pass on is well within the Rs 300 crore, it would not have a detrimental impact on the margins," he elaborated.

SBI’s current loan growth stands at around 17 percent (Y-o-Y) and the bank is hopeful surpassing it by FY13 end.

Further, he added that the bank is much ahead of industry when it comes to realising assets. "In our case the NPL scene has largely played out in the first and second quarter and we generally recognise the problems early. The third quarter number seems to be much better than that," he added.

Below is the edited transcript of Pratip Chaudhuri’s interview with CNBC-TV18.

Q: What are banks likely to do, do you think that there is a base rate cut coming and do you think that it will be 25 bps or will it be more sectoral according to you?

A: Our asset liability committee will meet late today evening because we want to have all the data and based on that data we would take a decision. It could be base rate cut; it could be a cut in some spreads or maybe a combination of both.

Q: Extending that point forward because you already have surplus cash so you can cut deposit rates quite easily but will you give lesser cuts for your borrowers. What exactly will the impact be on the net margins of the bank itself?

A: It would be margin neutral because our back of the envelope calculation reveals that we benefit by about Rs 250 crore per annum on account of cash reserve ratio (CRR) cut and Rs 50 crore per annum on account of the repo rate cut. So, totally it adds up to Rs 300 crore.  As long as the benefit that we pass on is well within the Rs 300 crore, it would not have a detrimental impact on the margins.

We still have some excess cash, but what we have seen in the last few weeks is a flight of deposits to the tax free bonds, liquid funds and income funds of mutual funds . So that has what has somewhat reduced our excess liquidity.

Yesterday, Reserve Bank of India (RBI) opened up the marginal standing facility (MSF) at 8.75, which is a huge positive. The Governor gave a clear assurance that there is no stigma attached to drawing under the MSF facility. So, therefore in terms of liquidity we seem to be quite comfortable.

Q: There is a lot which has been spoken about with regards to credit growth and it is not matching up with regards to what the RBI had put out in terms of an estimate for FY13. Can you throw some light with regards to your loan growth year to date and how much do you think that you are going to end the year in terms of loan growth totally for FY13?

A: Currently our year on year loan growth is running at about close to 17 percent. We have seen a huge surge in the month of December and particularly January. The interest gets applied on the last day of the month, so 31st being the last day; we expect a surge in the loan volumes.

Q: Can we assume that you will do 17 percent by FY13 or year end as well?

A: Looks quite likely. We could be surpassing that as well.

Q: One public sector undertaking (PSU) banker told me yesterday, he is seeing a new wave of non-performing loans (NPL) or restructuring in the midcap and the small and medium enterprises (SME) space. Is that true?

A: In our case the NPL scene has largely played out in the first and second quarter and we generally recognise the problems early. So, whatever we have seen in first and second quarter, the third quarter number seems to be much better than that. We are generally slightly ahead of the industry in identifying and declaring the problem. We have not seen any particular surge in the third quarter as such.

Q: In the last round of slowdown, from 1998 to 2003, the banks did not even have the law; there was no Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) to recover. Now you have a law to recover bad assets, still so much restructuring and so little recovery?

A: Look at it globally; the three major auto companies of the world, did the bank close in and sell off their assets. An orderly restructuring when you allow the companies to reorganise their liabilities is at the end of the day a much better deal for the banks and for loan lenders.

Even if you look at the Chapter XI bankruptcy code of US, which is largely followed in most other parts of the world, every opportunity is given to all the creditors be secured or unsecured to come together and look at a possibility of a restructuring or reorganising the liabilities.

If you close in and selloff the asset generally, the recovery thereof is much worse and even if you try for the change of management or selling of the company, we have realised much better value if it is a running company. Therefore, closing down the company, forcing into the auction is always the least preferred and is resorted to only when all other options have been exhausted.

SBI stock price

On November 21, 2014, State Bank of India closed at Rs 305.05, up Rs 7.95, or 2.68 percent. The 52-week high of the share was Rs 2977.85 and the 52-week low was Rs 291.05.


The company's trailing 12-month (TTM) EPS was at Rs 15.70 per share as per the quarter ended September 2014. The stock's price-to-earnings (P/E) ratio was 19.43. The latest book value of the company is Rs 158.43 per share. At current value, the price-to-book value of the company is 1.93.

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