State Bank of India expects to report lower non-performing assets in January-March as compared to third quarter, backed by better recoveries in retail NPAs and is very positive about its agriculture portfolio, Chairman Pratip Chaudhuri told CNBC-TV18 today.
The bank which has been on a crusade to recover its dues from United Breweries (UB) group owned Kingfisher Airlines through out last week refrained to say anything further on the matter, but said that their war against NPAs have started showing results.
Last week SBI, which heads consortium of other lenders was allowed by Supreme Court to sell shares of United Spirits pledged as a security against Kingfisher Airlines loans.
Chaudhari said that although large corporate loan book was strong, there was a stress in mid and small sized companies. He however is very optimistic about agriculture portfolio buoyed by better sugar and cotton crops.
The largest public sector bank also witnessed significant growth in loan book during the last quarter. "Our loan growth this year has been 21 percent which I myself am pleasantly surprised because it was running at something like 16 percent year on year till Q4 started. We would not be surprised if there is a 30 percent year on year growth on the books this year," Chaudhari said. He however clarified that corporate loan demand was still slack and hence the bank was concentrating more on individual home loans.
Below is the verbatim transcript of the interview.
Q: You have made the headlines over the last one week with your bold stance on trying to recover dues from the United Breweries (UB) Group. Can you just give us a sense of what your approach has been so far and whether you are steadfastly carrying on the path that you have set on?
A: Yes, generally I had made a statement that we have declared war on non-performing asset (NPA) and particularly we have had great success in recovering the retail NPAs. So we expect the core banking data that has been thrown up and unless there are very significant changes in the audit process we expect our March NPA numbers to be lower than December numbers.
Q: Is there an internal target that SBI is working with by the end of the calendar year as well in terms of how much you would like to scale NPAs down to?
A: The higher the better and we are judging everybody according to the reduction they are able to achieve in the NPA.
Q: The other worry every since the recent numbers that we got in from the Purchasing Managers' Index (PMI) figures is what exactly is happening at the industry level whether for some of these medium level corporates there is still quite a bit of stress. Could you just update us on what you see as the landscape in terms of whether there is more stress coming through either from this medium level corporate side or from the agriculture loans that seems to be accelerating?
A: First the good part. The large corporate book has held very well and in the mid corporate and SME there is stress. However now they have come to terms with the new realities and are in a better position to fight that. So there is a change in mindset, people are willing to let in new investors, they are willing to share control and they are also more amenable to advice like selling of their non-core assets so all that is working for the better.
However in agriculture I am more optimistic. I have toured extensively all across the country and whether in the north or east, even to a large extent in the south the standing crops are very good and we expect a very good harvest. Particularly the crop in cotton and sugar has been excellent so on agriculture front I am more hopeful of an improvement in the overall economy.
Q: On the UB Group loan are you continuing with what you have started a week back or has there been some kind of stalling of the recovery process?
A: It is not right for me to talk about an individual company and particularly not having the company to state its position. All I can say is that the loans are in default and have been called up and the usual recovery process is going on. It is the same whether it is any group.
Q: What is happening with the power space, how have you read developments on that space over the last few weeks in terms of your exposure to the sector?
A: Our exposure is largely confined to the good companies. Good companies I mean who have multi-plants so even if there is a disruption in one or few of their plants, their overall operations are not affected. So our largest exposure in power is to companies like National Thermal Power Corporation (NTPC), Neyveli Lignite Corporation, Power Grid and Damodar Valley Corporation. We have very small exposure to the State Electricity Boards (SEBs). We have been able to persuade them, that they must price their bonds in a manner so that there is no mark to market loss for the banks. For example if the bank loan currently is at 10.5 percent and the bond pricing becomes 9 percent and if the bonds don't have SLR status then there would be a huge mark to market hit in terms of interest foregone. So we are working with those SEBs to make sure that there is no hit to the bank in terms of the net present value. The SEBs are also now more amenable and coming around to rationalizing their tariffs because they have also realised that they cannot be perpetually losing cash, they need to become viable in their operations.
Q: There are some disturbing reports indicating that loan growth has probably hit a 15 year low and within that corporate loan growth has slipped to 11 percent from the earlier 16 percent. What do you expect to see in terms of the loan growth landscape for the course of this year, with specific reference also to corporate loan growth?
A: Our loan growth this year has been 21 percent which I myself am pleasantly surprised because it was running at something like 16 percent year on year till Q4 started. So there has been a huge increase in the loan book in the last quarter. However you are right even now the corporate loan demand looks slack so we are concentrating largely on the individual home loans and mortgages because we think that the consumption story and particularly the home loan story is holding very strongly and our interest rate of 9.95 percent is a huge attraction. We would not be surprised if there is a 30 percent year on year growth on the books this year.
Q: But you would say it is unlikely that through the course of this calendar year that 20-21 percent kind of loan growth can be maintained?
A: It is very difficult to make a prediction right at the start and as I said even till about November or December we had not anticipated a growth of 21 percent. However this growth drop as you said from whatever numbers that were there before, is in a way good because in the past years particularly the PSU banks have been mindless in their search for top line growth. If you look at the growth most of the growth took place in the month of March, many of them were unsecured loans and I would say that they did not bear the stamp of an adequate due diligence or risk assessment.