RBI's additional prov on overseas loans can be detrimental: SBI

The Reserve Bank of India (RBI) recently increased standard asset provision requirement on overseas loans to 2 percent from the earlier 0.4 percent. This could prove negative for banks with high overseas loan book.

Speaking to CNBC-TV18, VG Kannan, MD of State Bank of India said that additional provision could be ‘slightly detrimental’ for banks. Due to volatility in the international markets, RBI must have plans to restrict exposure for Indian banks through this, he added.

SBI’s 17 percent loan book is from overseas which included bonds and inter loans. The bank’s exposure to overseas loans is low, he said adding that it could relook into pricing and work on it.Below is the verbatim transcript of VG Kannan's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: Yesterday the Reserve Bank of India (RBI) said that banks could now give loans to oversee subsidiaries of Indian companies, stepped down subsidiaries as they are called, and the only caveat is that they have to make a higher provisioning, a 2 percent provisioning. What does this mean, does this open up a new avenue for infrastructure companies, how should we read these news?A: I don’t think there is anything new about it. The banks have been financing some of the step down subsidiaries in the past either directly or mostly through the foreign officers. I don’t think there is anything which is barring them from financing these companies. Possibly because of the huge volatility in the international markets and where the controls we have on the companies domestically which we may not have, RBI maybe having thinking on these lines.Latha: This additional provision will be a deterrent?A: Provision will be a slight deterrent in the sense to some extent, the pricing also could become expensive. The reason is while we finance the stepped down subsidiaries because the parent company or the dependent parents are well-known to us. Therefore on the basis of the strength of the parent company, we are comfortable in financing this. That is the reason why we take such exposures but RBI in its own wisdom probably felt that the international markets are much more volatile and possibly looking at slightly controlling this.Sonia: Just to get a sense how much of SBI's loanbook comes from overseas loans currently?A: Almost 17 percent of a loan book is there from the overseas but that is mostly into the bond market and a lot of investments not necessarily into loans so it is a mix of bond investment as also into loans.