No more credit to KFA, home loans raking revenue: SBI

Pratip Chaudhuri, chairman, State Bank of India (SBI), says that the bank is urging Kingfisher to take action on urgent basis and a consortium meeting is scheduled for next week.

Below is the edited transcript of his interview to CNBC-TV18.

Q: What is the update on the standing on the last meeting with Kingfisher Airlines (KFA) and the lenders? What is the new deadline set by SBI for the KFA management?

A: KFA has not informed SBI of any further developments. The position continue to remain the same.

Q: Will SBI wait till 30th November to hear from the company or do you feel that since the Diageo deal has gone through, now there is a possibility that promoters might put up some money and some of your issues might be resolved?

A: We'll not jump to any conclusion but we are urging the company to do things on urgent basis. A consortium meeting is scheduled for next week so we are not putting any deadlines. The Diageo deal affects United Spirits Ltd (USL) so we cannot infer that will automatically bring in money to KFA. The company has to disclose what their plans are.  

Q: The USL management has clearly stated that they were not interested in using any of the funds gained from this deal to help out any of their other companies. What is plan B if indeed this deadline expires on the 30th November, what is the next options for lenders like you?

A: The facts will be known only when there is any communication from the company. The steps are a consequence of detailed consortium meetings that are held so one meeting is scheduled next week. No further funding looks feasible.

Q: What is your view with regard to asset quality with the passage of time? Are some sectors beginning to look like they might come up in terms of stressed request to you, is it still looking very sticky for the next few months?

A: All asset quality issues are micro, it affect the respective banks in the way their portfolios are structured. We had a reprieve in our second quarter, our NPA has reduced to Rs 4000 crore from Rs 7400 crore which stood in the first quarter. I think there have been some improvements in realization of receivables. An immediate cash flow problem has been little better compared to June end.

Q: Your net NPAs remained higher quarter on quarter basis and alongside you actually load your provisions, is that a sign that the bank expects to see more recoveries in the second half of the year?

A: I will not build an expectation, asset quality issues get known only at the end of quarter but I don't think too much should be read about this provision cover because this measure is not globally present as no two NPAs are alike. I can assure you that our provisioning is very good and in fact on the higher side because we follow the philosophy 'when in doubt, provide.' There will not be any asset which is substandard in any other bank but standard in SBI. But there would be many assets which we have classified as substandard but still carried a standard in other banks. I think a provisioning of Rs 2000-2300 crore is the normal run rate. If we are able to bring asset quality deterioration down to that level then it would be fine but otherwise every asset that slips into substandard category does not mean a 100 percent loss.

Q: What is happening with the real estate and the construction sectors, there have been some media reports suggesting that the finance minister is requesting you to try and be a bit more lenient on this sector so that it can stoke some growth in the economy, how worried are you about asset quality in those sectors and would you consider being lending to the sectors on any kind of lenient basis?

A: Not exactly lenient, but I think this sector is showing the maximum promise. Maximum growth is coming from the home loan sector. Our home loan rates are 10 percent for up to 30 lakh and 10.15 percent beyond 30 lakh and we are seeing a lot of interest and traction in these two segments. Our exposure in commercial real estate is small about 1.5-2 percent of the total book. Our commercial real estate exposure is largely on the securitization of rent receivables where we have two levels of security, first the rentals coming from reputed companies and secondly the underlying value of the real estate. Our approach is that we will not compromise on the risk but we will rather compromise on the price. Lowest base rate of 9.75 percent gives us room to do that. So if there is a trade-off between asset quality risk and price, we would choose price but we will not compromise on asset quality.

The finance minister said that there are lot of semi-finished houses in many cities, why don't you see what can be done to bring those houses into the market, get them completed because in the semi-finished state, they are waste, they are not helping the builder or the consumer. In that context we had a meeting with Confederation of Real Estate Developer's Associations of India (CREDAI) and we are looking at ways where that asset can become a finished, ready to occupy property in the quickest possible time.

Q: Do you see signs that asset quality stress may peak within this or next few quarters?

A: The October data shows that the asset quality is much better compared to Q1. I should not make a forward looking statement because the interest whether it is being serviced or not only is known on the last day. As the bank is big and there are large numbers of accounts it is only possible to get a handle on asset quality only by 20th of the quarter following the close of the quarter.

Q: Suzlon is also a troubled account, where have stocks progressed in terms of restructuring that account because that is also significant one for most banks?

A: Suzlon has a sound business model. Their products are in demand globally but it is important for them to keep the interest cost low and they have funded their long-term assets with short-term liabilities. We and the CDR group is looking at how to phase out the liabilities. I agree it is troubled but I think in terms of prospects and more importantly the company's energies because in all these cases, it is largely a function of how enthusiastic and how capable the company management is, are they just dropping the company and walking away or are they trying to do everything possible to continue the struggle and come out because it is hard and a long duration work.  The management of Suzlon has shown enough evidence that perseverance and being in that struggle.