State Bank of India chairman Arundhati Bhattacharya feels the Suzlon did the right thing by selling its overseas arm. The company can repay debts, improve its books and take advantage of the government reforms.
India is seeing huge amount of interest at the World Economic Forum in Davos. Speaking about investor mood from around the globe, State Bank of India chairman Arundhati Bhattacharya told CNBC-TV18 people are cautiously optimistic on crude price rise and improvement in Europe post ECB's bond purcahse programme. "The overall mood is quite positive other than those nations which are energy dependent."
Lauding the Suzlon deal, Bhattacharya said the proceeds will go on paying debt and help the company save on interest cost. It will enable Suzlon to turnaround and become a better managed company. Suzlon is favourably placed to take advantage of government reforms in the wind energy sector.
On Thursday, Suzlon announced selling off its German arm Senvion for 1 billion Euros. SBI, which has an exposure to Suzlon, was keen that the company sold its assets.
Asked about lowering of base rate, the SBI chairman said it will largely depend on cost of funding.
Below is the verbatim transcript of the interview.
Q: The mood here in Davos both the outlook towards India and the outlook towards the global economy, what are you picking up regarding 2015?
A: Regarding India there is a lot of interest, huge amount of interest in fact. If you compared to last year when we hardly got any feelers regarding meetings and things like that.
In respect to the global economy people are cautiously optimistic. US continues to remain a bright spot. The understanding is oil prices will go up but not too much. Also the QE that has just been declared by the ECB that is sort of perking up sentiments in respect of Europe. Those people still feel that a lot of structural reforms are also required for that economy to really get past the fragile state.
However overall it is optimistic excepting for those nations that are mainly dependent on energy exports and maybe commodity exports. Other than that rest of it is quite positive.
Q: Let me talk about India and SBI. The first question has to do with news and it has to do with Suzlon which has just announced a big deal this morning about the sale of one of its subsidiary companies, Senvion. What will that mean for the ability of lenders to now get back some of their money from Suzlon? I know the deal is just fresh and you are here in Davos, the time difference and all of that means you may not have all the details but whatever you know so far and what you can tell us?
A: As you know we had been pushing with a lot of people to sell assets in order to deleverage balance sheets. This deal of Suzlon is precisely in that line. The entire proceeds will go towards repayment of debts and to that extent Suzlon's interest burden will come down substantially. It should enable them to turn around and become a much bigger and a better company because of the lessening of the debt burden and because of the huge opportunities that the Indian economy is now throwing up.
As you know renewables is one of the major focus areas of the new government. Suzlon is excellently placed to take advantage of those government policies and therefore it was necessary for them to get past these regular worries that they had because of the huge debt that they were sitting over. It is a deal in the right direction and we are all very happy. We have been talking to the promoter, in fact recommending it, pushing him towards it for quite a long time and therefore the fact that it has happened we are very happy.
Q: There was resistance by the promoter to sell assets?
A: Not resistance. It is a question of them wanting certain valuations which were a little difficult. We have been in constant touch with both the parties concerned and we have managed to convince everybody that it's a good deal from both sides and that's how it happened.
Q: The data I have seems to indicate that SBI's exposure to Suzlon is in the region of Rs 3,500 to Rs 3,600 crore. Would that be in the region of correct and how much of that debt would get retired as a result of the deal that's just been decided?
A: That is difficult for me to tell you because we have to see how much as the debt given for this particular unit. So, it will be prorata divided amongst all the people but as I said it will be substantial saving of interest for the corporate.
Q: And a big return in terms of money that comes back to you as well, right?
Q: Let me get away from Suzlon now and talk a little bit about banking and the Indian economy. The RBI just a couple of days ago made this new announcement on base rate and how it gets fixed by banks. What is your take on how it will impact base rates especially at SBI?
A: That is something I have to go back and look at. I haven't had a look at it as yet because there has been a lot of complaints from industry that there is no transparency in the way the base rates are getting fixed. That is why RBI is trying to give some clarity to that. Having said that basically the rates of banks will depend upon the funding cost and efficiency of that bank and again efficiency can be termed in so many ways but basically it is your expenses as well as your funding cost that determines at what rate you can give because you need certain margins.
So, to that extent I do not think there will be a very material impact. There might be better understanding of how we are getting to those rates but I am not too sure as to how much of a material impact this will have.