Slippages worth Rs 3000-4000cr to be reversed by Q3: SBI

SBI saw bad loans spiked 4.99% to Rs 7,000 crore in the first quarter of FY13, much higher than street estimates. Net non-performing assets also saw a jump to 2.22% from 1.82% quarter-on-year. This rise spooked investors, who dumped the stock causing it to fall nearly 4.5% to Rs 1,887.

Chairman Pratip Chaudhuri is confident that the bank will be able to reverse this situation in the coming two quarters. “As companies restructure their finances and reschedule their liabilities, we think crore Rs 3,000-4,000 crore out of the Rs 7,000 would revert back to standard category in the second quarter itself or by the third quarter,” he said in an interview to CNBC-TV18.

He further adds that the slippages came in towards the end of the quarter, due to which they did not have enough response time.

On the positive side, SBI has reported only Rs 562 crore of restructured assets in the quarter, which takes its restructured book to Rs 37,000 crore. Going by historical data, only about 3% of the restructured books become losses. “So with our restructured book about Rs 37,000 crore, I think in the worst case scenario the possible loss should not be more than about Rs 1,000-1,100 crore,” said Chaudhuri.

He goes on to say that restructured accounts should not increase going forward, except for in the power sector.

Below is an edited transcript of his interview with Gopika Gopakumar.

Q: Is this the worst slippage that SBI has ever seen in its history?

A: Historically, yes. But slippages have to be seen in the context of upgradation and recovery. The net increase has been Rs 7,000 crore, but we have seen this kind of slippages and net increase in the first and second quarter last year also. With concerted effort the situation was improved significantly.

This year, the slippages came in towards the end of the quarter where we didn’t have enough response time. But as the companies are restructuring their finances and rescheduling their liabilities, we think out of the Rs 7,000 crore Rs 3,000-4,000 crore would revert back to standard category in the second quarter itself or by the third quarter.

Q: The restructured accounts for this quarter have come in at Rs 564 crore. Is this a more deliberate effort from your end to keep restructuring low and probably show more of the slippages on the books?

A: Not particularly. Restructuring and slippages are two different things. Even if an account is restructured it can still slip into NPA category. We recognize restructuring when all the banks have given in their consent and all the conditions precedent like the promoter’s personal guarantee equity contribution are in place.

This has happened with respect to the Rs 564 crore of advances. That is why we have declared it as restructuring, which means that restructuring is complete. But if you have to correlate restructuring with asset quality, historic data indicates that 20% of the restructured book falls into NPA category. Out of that, about 15% becomes an eventual loss. So the net loss on the broad restructured number comes in at about 3%. So with our restructured book about Rs 37,000 crore, I think in the worst case scenario the possible loss should not be more than about Rs 1,000-1,100 crore.

Q: Could we expect more of restructuring or restructured accounts coming in the next quarter considering this quarter we have seen only a marginal increase?

A: Not particularly. The sectors that were under stress are slightly unwinding, because iron and steel the ore position, the mining position has become better after Supreme Court has given its verdict on what can be mined.

In the textile sector also with recent drop in the rupee value vis-à-vis dollar situation has slightly come back from the precipice and it is little better.

In the aviation sector, except for one company, all others have turned cash positive. So we do not see any fresh sectors emerging except for power sectors where the power companies are dependent on sales to the distribution companies.

Q: What could be the impact of the lack of monsoon or the delay in monsoon? Do you see more of agricultural loans becoming NPAs?

A: Not so much on the loans but the overall economy. Monsoon determines the level of storage in our reservoir, the power requirements and so all that would be under stress. A deficient monsoon is certainly not positive, it’s certainly slightly detrimental to the economy.

But there is not so much of additional stress on agriculture NPAs because right now the stress is because farmers have not renewed their agriculture cash credit accounts. So in the month of July and August that position has improved and in fact between June 30 and now the agriculture NPA position has become a little better.

Q: If you look quarter-on-quarter, provisioning has come down marginally. But do you think this kind of provisioning is enough for the kind of slippages that we are seeing on SBI’s books?

A: Absolutely. Even last quarter, when we didn’t have a single penny increase and in fact there was a decline in the NPAs, we did a provisioning of Rs 22,800 crore. In provisioning there is an element of estimate that what the securities will realize and what is the collectability of the debt. So generally we maintain a provisioning requirement between Rs 2,800-3,000 crore. Even this quarter we could have got away with a slightly lower provisioning, but we think in matters of provisioning we should rather be safe than sorry.