Jul 20, 2016 07:58 AM IST | Source: CNBC-TV18

Growth cycle yet to take off but more capital will help: SBI

In an interview with CNBC-TV18, Arundhati Bhattacharya said that banks loan growth is not solely dependent on capitalization but rather on acquiring good projects.

As per its Budget promise, the government today announced the recapitalization of 13 public sector undertaking (PSU) banks and said that it would infuse Rs 22,915 crore in order to help the banks with non-performing assets (NPAs).

India’s largest bank, SBI has been allotted with Rs 7.575 crore from which the requirements of its associate banks will also be catered to, says SBI Chairman, Arundhati Bhattacharya.

In an interview with CNBC-TV18, she said that banks loan growth is not solely dependent on capitalization but rather on acquiring good projects.

The growth cycle is yet to kick-off and the availability of good projects is important to support the bank’s loan book growth.

Below is the verbatim transcript of Arundhati Bhattacharya's interview to Latha Venkatesh on CNBC-TV18.

Q: Should we understand that the Rs 7,575 crore that you have got is for the entire State Bank family because the babies have not been mentioned separately?

A: The babies' requirements are always worked into our requirements - that's the way it has always been. The government actually doesn't put money, they are straight, those are owned by us and then we put money in them. The government has never directly capitalised them.

Q: We had spoken to Mr B Sriram earlier and he said that your capital adequacy, even tier one will rise to as much as 12 percent and above. What kind of a loan growth are you expecting now that you are backed by a fairly substantial amount of capital?

A: Loan growth is not only dependent upon capital; it is also dependent upon us getting good projects. As long as good viable projects are coming, we should see fairly good loan growth. The reason why we had predicted around 12-13 percent was not because we lacked capital to grow.

Even today our capital adequacy is in excess of 13 percent. So it is not that that is impacting. I think the growth cycle is something that is still to kickoff but definitely with better capitalisation you feel more comfortable that you can grow as required depending upon proper availability of good projects.

Latha: Can you guess the government's logic of allocation of capital. Some of you have got a substantial amount of capital, of course for a big bank like you that is to be expectant, but Indian Overseas Bank (IOB) for instance rank underperformer has got Rs 3,000 crore of capital but a bunch of banks like Indian Bank, Andhra Bank, Vijaya Bank, Bank of Maharashtra have not been given capital. They are actually smaller offenders, if you only look at the non-performing loans (NPL) percentage. Any guesses what may have been the principle of allocation?

A: One principle is very clear and that is something that the finance minister has also uttered in a number of places that nobody will be allowed to fall below the regulatory requirements. At the end of the day it is the government's bank and the government would not like to be seen as shareholder that does not bring in enough money in order to ensure regulatory compliance.

I think they have ensured that everybody to that extent has the right kind of capital in order to be fully compliant with all regulations everywhere - that maybe one of the reasons why this has happened and the ones that you named, for instance Vijaya Bank, Andhra Bank etc, they were not into corporate lending so much and therefore their requirements have also been lower.

So that is the way that this allocation has been done though I am not privy to what actually went on but looking at it, it would appear that this was the logic.

Q: What about the consolidation. I know you are not in that conversation at all because you have your own consolidation going on, but is that also something that is parallely being thought through by the government?

A: I think yes. I think the government is clear on the fact that consolidation probably is required. They are not saying that everybody needs to consolidate but they do believe that some bigger entities would be good for the system and that is fair. If you look at places like Australia, China, they have three or four very large banks and it's a system that has worked well in many countries. It is also a system that enables large projects to be supported without bringing in too many lenders in order to make it dysfunctional. So this is a thought that the government has. They are thinking through it. The regulator also has some thoughts on the subject but the conversation is an ongoing conversation.

Q: There is some likelihood that the Vijayas, the Andhras and the IOBs - one is in Tamil Nadu, other is in Hyderabad and one is in Bengaluru. It looks like they would group together. So it is not consolidation that has one of the themes even while allocating capital, no.

A: No, I do not think that is the theme for the capital allocation. I do not think that is what has been done this time.

Q: Would you be privy to any thoughts about the recapitalisation bond. As an industry the banking sector today stands at 7.6 percent gross NPLs and the Reserve Bank of India's (RBI) financial stress stability report indicated that the base case is 8.5 percent gross non-performing assets (GNPA) by March 2017, it looks like it will peak over there - that's the base case. The worse case is 9.5 percent. So do you think that another dose can come in the form of recapitalisation bonds, is that thinking there?

A: I am not privy to it.

Q: Because the Governor dropped a hint saying that that is also an instrument of recapitalisation but no thinking as yet according to you?

A: I am not privy to it.

Q: What is your sense about the extraordinary hectic activity in terms of mergers? Is it possible that the watch list you gave and the guidance you gave in terms of slippages may actually turnout to be lower because we are seeing a substantial number of stressed companies getting bought over by stronger companies?

A: Lower is always a possibility but I wouldn't like to put that on the table. I would prefer that we if we can that we surprise on the upside meaning on the better side and therefore at this point of time I would not like to put any numbers there. However, the asset quality review (AQR) that we had and which the smaller banks had - that is our associates had, were vastly different.

So there also we will have to do a kind of a rationalisation between our banks and the banks that we are taking over. Therefore, at this point of time we will go with the guidance that we have given and hopefully going forward we will be able to see things happening.

Today, for instance if you have seen the papers, there is a small item that says three of the road projects that we were in, the government has agreed now to bring in the equity. These are the small-small things which may go unnoticed in the whole lot but these are the things that will enable us to take out those accounts from the watch list and put them on to regular platform.

Q: It didn't go unnoticed at all. National Highways Authority of India (NHAI) chairman was on the channel exactly on this news and he also told us about Madhucon Projects and Supreme Infrastructure India incidentally Supreme Infra was also on the channel. He told me that SBI had given Rs 400 crore between all these three projects and they were bringing in some Rs 1,200-1,500 crore for the same projects -- that's exactly why I was asking if the ultimate slippages maybe lower than what you guided.

A: Let us keep our fingers crossed but the fact is such actions will need to get multiplied several times before we can be confident about saying that.

Q: The special funds and the stressed asset funds that you were talking about. Already the Piramal group has floated a special stressed asset fund; the KKR group is already very well into it and is looking at assets. We understand that other foreign groups are also coming in. Is this interbank fund that you were talking about, seeing the light of day? Have you all been able to put together anything?

A: That is still getting worked on. Mainly because initially the idea was that National Investment and Infrastructure Fund (NIIF) would be on the other side but subsequently because NIIF felt that this is something they would like to do later down the road and the first attempt they would like to do is greenfield fund. So to that extent we have to still find some other ways of doing this but yes, the conversations are in advance stages and you will come to know as soon as we do any signings.

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