SBI has Rs 26,600 crore worth of exposure to 27 accounts of RBI list of 30 accounts and Rajnish Kumar expects most of them to be filed under Insolvency and Bankruptcy Code (IBC).
State Bank of India, country’s largest lender, expects most of the accounts from Reserve Bank of India’s second list to be referred to the insolvency courts and increased its provisions to improve the bank’s loss absorption capacity.
The government-owned bank has exposure of Rs 26,636 crore to 27 accounts of about 30 listed by the central bank.
Chairman Rajnish Kumar expects most of them to be filed at National Company Law Tribunal (NCLT) for resolution under the Insolvency and Bankruptcy Code (IBC).
Presenting the results for the first time after being appointed as the Chairman, Rajnish Kumar said, “Almost the entire list will go to the NCLT. By March, the directions would be determined for the cases in the first list. The whole strategy around corporate cases, more and more, will probably be referred to the NCLT.”
To make up for the potential losses and provision requirement as directed by the RBI, SBI has made 75 percent of the requirement upfront in case all accounts are admitted to the NCLT.
The provisions towards non-performing assets (NPAs) jumped 38 percent sequentially to Rs 16,715 crore and more than doubled from a year ago, pulling down its profits.
“The idea for increased provisions is to enhance our loss absorption capacity. The strategy the bank intends to adopt is we come closer to the expected loss as far as our NPAs is concerned. This time we had some cushion available from SBI Life stake sale (Rs 5,436 crore). So, we thought it through to increase our provision coverage ratio at 65 percent. The effort will be to strengthen it further,” Kumar said, adding that the bank is strong and they want to make it stronger and “weather any storms in the future”.
Profit and asset quality
Despite a 38 percent drop in net profit from last year and 21 percent fall from the previous quarter, the government-owned bank witnessed improvement in its asset quality with a reduction in gross NPAs by Rs 1,954 crore and net NPAs were reduced by Rs 9863 crore from the last quarter.
Gross NPAs as a percentage of total loans improved to 9.83 percent from 9.97 percent, while net NPA ratio reduced to 5.43 percent from 5.97 percent of total loans. The NPAs worsened from a year ago with gross NPAs at 7.14 percent and net NPAs stood at 4.19 percent as on September 2016.
Performance & credit growth
The SBI chief said he was satisfied with the performance this quarter. “NPA is something we are capable of handling and we will emerge stronger…maybe 2 or 3 more quarters. The story is very strong and retail franchise is supporting us; the rate at which the slippage ratio has started coming down, we are hopefully in for some good times.”
SBI’s credit growth remained muted at 0.95 percent with majority growth in the retail loans, which grew by 13 percent.
“Demand for corporate credit for the next two quarters will remain muted, I believe, and the story will continue around consumption (retail)…Credit growth will not be beyond 5-6 percent for the full year,” Kumar said.
He added that the bank is “not chasing credit growth but returns.”
B Sriram, Managing Director and Corporate Banking head at SBI said, “A lot of deleveraging (in companies) is taking place. Project pipeline in new projects has dried up and capacity utilisation is still at 70 percent; so, there is still time for corporates to look at fresh credit.
“There is also a clear movement to the market (bond market such as commercial papers) of better rated corporates for funding and hence the growth is not reflected in banks. We are hoping to see a turnaround in FY19,” he added.
SBI is also seeing good recoveries from retail and SME (small and medium enterprises) with its NPAs in retail declining to Rs 53,000 crore of the total NPAs of Rs 1,86115 crore.
“We will hopefully recover more and bring down retail NPAs to Rs 50,000-51,000 crore. SME and personal loans are showing good recovery; agriculture will start showing once we get the loan waiver amount from the government,” Kumar said.SBI’s watch-list of potential bad loans has reduced to Rs 21,288 crore from Rs 24,444 crore last quarter and Rs 32,427 crore at the beginning of April this year.