Expect some announcement from government on doubling farm income by 2022: SBI

On Micro, Small & Medium Enterprises (MSME) he mentioned that it is definitely a focused area for the government but it will be a focused area for banks also.

According to him, MSME sector is a better risk profile than corporates right now.

Number in stressed assets won’t move up, he further mentioned.

Below is the verbatim transcript of the interview.

Latha: According to you, what may be the lessons or what may be the changes in policy that we may expect from the government? There are a lot of people who are expecting a farm focus.

A: That is a right expectation and what we are seeing that there is some distress in the rural sector and that is why the farm loan waivers in many states have come. So there is definitely a need that the plan which the Prime Minister has said about doubling the income of the farm sector by 2022, so, some action is definitely expected in that direction and particularly, there may be a time to have a relook at the minimum support price (MSP).

Latha: Would that worry you, if the MSPs were raised, after all the monetary policy committee (MPC) has a mandate to look at inflation and keep it at 4 percent. So, if food inflation were to rise because of higher MSP, will you have a problem of higher yields?

A: That is definitely an issue but it requires a little bit more research and the people who work in the field that whether the MSP if it is not raised and whether we live with the lower incomes for the farm sector or some balancing act where farmers get remunerative prices and in the process there may be some hike in the food inflation. So it is a very delicate balancing act I admit, but it is still I believe that in the farm sector the one thing which has happened very positive is about the crop loan insurance facility might be used now.

The second is MSP is one way where the cost of inputs – farmer does not get compensated for that, then how do you ensure that farmers get a remunerative price or are able to recover their costs. So there has to be some way for this where the inflation is also controlled but at the same time the farmers are not deprived of a decent income for the hard work they do in the field.

Sonia: What is the situation as far as agri finance is concerned at the moment, State Bank of India (SBI) has a huge market share there, almost 30 percent, how is the loan growth and are we looking at more stressed assets, etc.?

A: We are not looking at any elevated stressed assets. In some of the states where the growth in agriculture finance because a lot of money came under agriculture debt, they were not necessarily in NPA accounts, but overall because in Maharashtra and Uttar Pradesh (UP) there was flow of money in the accounts. So at macro level or the consolidated level, our portfolio growth this time is lower than the last year. However, our effort to renew the kisan credit card (KCC), that is going at full speed and the percentage of renewals is much higher compared to the previous year.

Latha: There was a passing reference when the capitalisation plan was announced that the banks would be goaded to give loans to Mudra kind of companies, MSMEs. Are you expecting some MSMEs targets when the capital comes?

A: MSME definitely is a focus area for the government but let me also say that MSME sector will be a focus area for the banks also because now what we have realised that earlier there was a fear that MSME will have higher delinquencies, but what is turning out to be is that MSME is a better bet when it comes to the risk compared to the corporates at least in the current situation. So that makes imminent business sense that the flow of credit improves to MSME sector and there are changes in the method of lending.

Latha: So we don’t have to fear that MSME focus will mean more stress?

A: No not at all.

Latha: One of the conversations we just had with one of the market veterans is that the amount of provisioning done in terms of 50 percent for the say around 40 NCLT cases, may be inadequate, that in some of them the haircuts may be deeper. Is that your sense as well, how much more can it be on an average for these cases, could it be 60 percent?

A: About the NCLT cases, in fact in SBI we are holding more than 50 percent provision but my feeling is that on a portfolio basis, the numbers may be just adequate or maybe short by 5-7 percent. So maybe like 55 percent would be a very safe bet. However, still like in certain sectors because the scenario has turned out to be more bullish particularly steel sector which constituted large percentage of NPA. So, 50 percent would mean that even if there is some shortfall, it is not so much that the banks will not be able to meet that shortfall.

Sonia: You did mention that crop insurance has been a very positive move for the farmers. You guys at SBI have also undertaken a lot of camps in order to smoothen the flow of credit to the farming community as well. What else would you expect to hear from the government with regards to solving or reducing the farmer distress?

A: I have mentioned that remunerative prices for their crops that is one thing which comes to my mind. So basically once the farmers have the protection of any loss on account of any natural calamities, once that risk is covered, and anyone who invests, whether it is a farmer or industry or anything, wherever you invest money and you invest time and do labour, you expect a decent return on that investment. So it is fair that farmers are also given a fair deal as far as the MSP is concerned.

Latha: At the moment your NPA stands at about 9.9 percent. Is that the peak, how many quarters more can we have higher slippages, what are you looking at as a possible NPA number say four quarters down the line?

A: One is that if you look at our numbers in September, there is an improvement on the accretion of fresh NPAs. However, there are some stressed assets. Let me put it this way, if we look at the NPA numbers, and the stressed assets, then that number is not going to go up, it is going to come down in next two to three quarters. So, you have to look at the NPA plus stressed asset number together.