Will restructure loans worth Rs 7000 cr in 1 year : SBI

The new draft rules of restructuring will help build additional contingencies, says managing director and chief financial officer of State Bank of India, Diwakar Gupta.

The Reserve Bank has disallowed banks from getting any lower provisioning benefit if they restructure loans. This is a draft rule and may kick in from April 2015. One of the main points in the draft rules of restructuring is that the distinction between the categories of restructured assets getting a lower provisioning is going to be obliterate. This effectively means that there will only be good assets and bad assets.
With the new restructuring rules, Gupta says restructuring as a concept could be ruled out. "What will happen is that projects will have to have those additional contingencies built in so that one doesn't necessarily have to push people into what we today see as restructuring," he adds.
On expectations of restructured loans, Gupta says, "We have a pipeline which is around Rs 7000 crore over the next one year and therefore, Rs 350 crore provisioning on this would be safe to expect," he adds. Below is the edited transcript of Gupta's interview to CNBC-TV18. Q: Do you think banks will become simply more wary of lending, starting now itself because after April 2015, there won't be the option of being able to tweak the loans?
A: The year 2015 is two years away. So, we now have a window which is going to change the way we are going to underwrite. I don’t think it means that there will be credit aversion. What will happen is that projects will have to have those additional contingencies built in so that one doesn’t necessarily have to push people into what we today see as restructuring. Q: You mean you will look for all possible approvals before lending?
A: That is right. Even a longer repayment than the repayment can be possible. Contingencies at maybe 5 percent more than the usual that we have can be done. This is so that for anything untoward, we have a built-in sanction in the original sanction itself consistent with the loan servicing. Q: So you will give yourself a little more buffer when you charge the loan. Won't that mean that loans will become more expensive?
A: I am not too sure. That will depend on demand and supply. If liability gathering is good and if credit off-take is reasonable, then it is the competition which will determine. I don't think that we need to interpret that the new guidelines definitely mean higher credit cost for the bank. It only means better due-diligence. Q: You also have to provide about 5 percent for restructured loans from this year and also increase the provisioning for the stock of restructured loans from 2014. How much will your provisioning bill go up by?
A: We have a total restructured stock of about Rs 40,000 crore of which about Rs 35,000-36,000 crore is still in restructuring and has not yet been upgraded to regular standard. Taking non performing assets (NPAs) out of this, we have about Rs 23,000-24,000 crore of restructured loans. About Rs 250 crore would be the additional provision on that at 1 percent.
Now, as far as new restructuring is concerned, 5 percent is obviously more than 2 percent but I don’t think provisioning is really the driving factor behind restructuring or otherwise. Atleast SBI has consistently maintained that we restructure only where we think inherent viability exists and the current problems are not wholly in the control of the promoters. Therefore, I don’t think our decision to restructure is going to really be affected by a higher provisioning requirement. Q: What will be your incremental restructured loans in 2014? What will be the additional provisioning on that?
A: We have a pipeline which is around Rs 7000 crore over the next one year and therefore, Rs 350 crore provisioning on this would be safe to expect. Q: Do you get a sense that upgrading is also difficult? Four quarters of good behaviour after the longest moratorium is over. Will upgrading become difficult?
A: Yes and no. It is not always that particular restructuring has several facilities restructured for different periods. Sometimes everything is co-terminous. However, yes it may take a little longer. Even if that happens, it doesn’t worry us too much because we restructure only where we are fairly certain that the company will survive and thrive. So, we will be fine with upgrading it one year later. Our past record is also not bad, we have had slippages of less than 20 percent on the entire restructured book.