Nov 29, 2012 09:43 AM IST | Source: CNBC-TV18

Banks well positioned in terms of liquidity & deposit: SBI

Though the financial industry is struggling to combat crisis, some feel that it is comfortably placed now. Pratip Chaudhuri, Chairman of State Bank of India (SBI) feels that banks are better positioned in terms of liquidity and deposit scenario as compared to 2012.

Though the financial industry is struggling to combat crisis, some feel that it is comfortably placed now. Pratip Chaudhuri, Chairman of State Bank of India (SBI) feels that banks are better positioned in terms of liquidity and deposit scenario as compared to 2012.

Talking specifically about SBI, Chaudhuri says that 2011 was a 'horrible' year, 'a year we would like to forget'.

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"Things today are much better than they were in 2011. As on March 2011 we had unprovided pension liability of Rs 10,000 crore. From thereon we came to March 2012 when we posted a record profit of Rs 11700 crore which is third highest in the industry after ONGC and Reliance," he says in an interview to CNBC-TV18's Gopika Gopakumar at the sidelines of Bancon 2012- an annual event that showcases the best and the brightest minds in the banking industry.

Here is an edited transcript of his interview.

Q: A lot has changed since 2011. Profitability has slipped, asset quality has deteriorated, above all uncertainties have increased. How do you think Bancon 2013 is going to look like?

A: That is one way to look at it. If I look from SBI's perspective, things today are much better than they were in Bancon 2011. Two things, one is for the bank we had a horrible year, a year we would like to forget. As on March 2011 when we had unprovided pension liability of Rs 10,000 crore. From thereon we came to March 2012 when we posted a record profit of Rs 11700 crore which is third highest in the industry after ONGC and Reliance.

So last year has been a big improvement over Bancon 2011. From the industry perspective one thing definitely looks brighter that is the liquidity and the deposit scenario. I would still think during Bancon 2011, banks may not have been challenged in terms of deposit growth or deposit sourcing. However, today relatively all of them are much more comfortably spaced.

Q: A lot has been written about asset quality. Infact RBI in its report on banking- trends and progress said that it is probably because of the lack of due diligence done by banks during the 2008. That is the reason why banks are seeing a rise in asset quality. Is that the reason according to you that probably the banking sector is seeing a rise in asset quality?

A: Those who are saying this have the benefit of hindsight. Those who took the decisions then, did not have the benefit of hindsight. When you drive a car you look at the windscreen, you don't look at the rearview mirror. I would not fault them because at that time if you assessed the hotel occupancy, if you assessed the projected demand for steel, everything looked much better.

The crisis had not happened in 2006-07 and look at the price of the shares of telecom companies. Look at the auction price of spectrum. So more people were more gung ho at that time therefore what do you project? How do you project in life?

Q: Often this comparison has been drawn between public sector and private sector banks especially with regards to asset quality, what is surprising is that there is still a divergence, a widening divergence even among public sector banks. Say a Bank of Baroda (BOB) would have reported a better asset quality than a SBI or a PNB, why do you think there is a difference in the asset quality picture?

A: It depends because somebody recognizes it early, somebody wants to give the benefit of doubt and go to the substandard categories slightly later. It is also a function of asset selection, all the banks may not have the same asset book. I would be worried if there is an asset 'A' which has been classified as substandard by some and classified as standard by others. So there is a role, to my mind, of regulator to think of some degree of uniformity on asset classification of a particular company.

In the US and in other geographies, the regulators do that. So now if somebody has lent more to the troubled company, they would have a higher NPA or restructured, if somebody has lent less, they would have less.

Q: Even if you look at the amount of restructuring cases that has seen an increase but do you think the amount of restructuring that we will probably see in the second half. Do you think next one year will probably be similar to the 2008 levels or could it be worse than that?

A: It depends how the economy functions because most of the restructuring which is happening today is due to lack of demand for their products. The restructuring, in our case, is largely due to two things, one is inability to realize the dues of receivables particularly from state government, National Highways Authority of India (NHAI), power distribution companies (discoms) etc and next towards that the lower profitability than projected.

They had committed themselves to a very short tenure of term loan, relatively short. Also textile mills have asked to spin unit committing to 8-year repayment period. However, this time on, except perhaps cement, all other producers even telecom or airlines or steel are seeing challenges in pushing up the demand. They are facing increasingly bigger challenge due to cheaper reports.

Q: Do you think there is a need for a sort of one time dispensation for restructuring like we saw in 2008? Have we come to that stage where you think - both of you are sitting on a pile of restructured cases where the borrowers are finding it difficult to repay, do you think that kind of situation has arisen?

A: No, I would not recommend a special dispensation because let us understand that with the RBI being a signatory to the basel declaration, they have to converge. However, in the case of refinancing - nowhere in the world or even in India, it extends that loan from five  to eight years, there is no restructuring. If five years becomes eight years in a rupee loan regardless of the underlying security or of other strength, it becomes restructuring. So I think there is a need for a greater clarity and convergence on what is restructuring.

What is happening today, anything where the terms are being changed, regardless of the underlying asset is being branded restructuring, so these are some of the things. I think this should be decided in consultation with the banks.

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Q: You have spearheaded to big mergers at SBI?

A: Mergers are always spearheaded by the owners, so they have to decide. Within SBI, the economic rationale for a merger is strong. Merger of five bank s are pending but every merger additionally burdens the banks with Rs 1,000-1,500 crore by way of employee’s superannuation. Today, SBI is not in a best position to take dent in capital. If capital becomes comfortable, then there is strong rational for merger. For us, capital is hurdle.


Q: The tenth bipartite wage negotiations have already been kicked off, would you be a tough negotiator or would you be lenient to the unions demand this time?

A: I think there is a need to attract and hold talent. We are facing an attrition of 40 percent among junior employees because the salaries are low. People are moving for other government employment or other professions. I think there is a need to rationalize salaries at the lower grade. I think monetary we should be practical but we need to persuade the association and the union to agree to shoulder larger responsibility and duties. We should have more flexible working hours and be prepared to work on Sunday's and other days unless we take these initiative public sector banks public sector banks will not be able to compete with private sector banks. But they understand, and both sides should be responsible and understand that there is need to strengthen the competitive positioning of the public sector.

 

Q: What is your view on CRR?

A: The CRR debate, suggestions or discussion should be based on three factors.

 

Per se CRR is creating a disparity in the financial sector. Why are only banks being targeted for CRR? Why is the RBI not targeting life insurance companies, mutual funds, particularly the debt mutual funds? Debt mutual funds are alike banks, If CRR is a monetary instrument then it should be used right across.

 

Second, if the bank does not pay interest on CRR than loss return is loaded on other borrowers which keep the interest rates for borrowers high and interest for depositors low. 

 

Third, should a capital starved country like India lock up Rs 3 lakh crore and do nothing with it. No advance country in the world has this kind of CRR. By doing this we are hurting ourselves. If the CRR was abolished 10 years back, the economy would have been larger by 25 percent, revenues would have increased by 25 percent and there would be 15-20 percent more employment. So, who is the loser?

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