State Bank of India has recognized 50 percent of its non performing assets during its asset quality review in the December quarter, Arundhati Bhattacharya, Chairperson, SBI tells CNBC-TV18.She says the bank is looking at turning around stressed assets and is hopeful that some of these will start performing as important projects get back on track. She syas the biggest hurdle is the speed of dispute resolution."It is far worse and inefficient compared to many other nations," she says, adding a way has to be found so that disputes are resolved within a fixed time frame.Bhattacharya is expecting more capital from the government for public sector banks in the upcoming Budget.She says SBI will look at divesting non-core assets and paring stake in subsidiaries next year. Below is the verbatim transcript of Arundhati Bhattacharya's interview with Latha Venkatesh & Sonia Shenoy. Latha: Our correspondent broke a story that is picked up from government sources and Reserve Bank of India (RBI) that bankers, RBI and the Department of Financial Services (DFS) are talking with the Central Vigilance Commission (CVC) to get them on board for asset sales by banks. Can you update on whether such a conversation is happening and what is the bank's position?
A: When you have quite a bit of non-performing assets (NPAs) and you need to bring about resolution of the same and you want to do it in short order, you have to certain times take calls. In respect of the public sector every call can be second guessed and hindsight is always 20-20. While there is need for transparency, there is no doubt about that. How do you bring about this transparency in an effective and efficient manner because many of these units that are now classified are working units. So they have workers, they have dealers, they have suppliers, they have ancillary units. You need to preserve the value of all of these and ensure that you can give them as smoother transition as possible and that is the reason why it is important to get all stakeholders on board so that the public sector bankers can take decisions knowing well that their decisions will be supported and will not be subject to all kinds of questionings at a subsequent period.
Sonia: By when do you think the process could start, could get completed and by when do you think we can start to see these asset sales take place?
A: It is not a question of when it starts and when it ends. As you know for the last one-and-a-half years we have been looking at these kinds of assets and we have been trying to turn them around. There are a few cases where we have done it as well, for instance in the case of Ratnagiri Gas and Power Private limited (RGPPL), in the case of Suzlon, in the case of Haldia. So there are many such assets where we have managed to do a lot of things in order to make them turnaround. So these processes are ongoing processes. What brings urgency now is because the numbers have gone up and because once it becomes NPA giving it money for even working capital becomes very challenging and therefore it is important to get these units back on track as quickly as possible.
Latha: How much do you think you can therefore get back in terms of recovery? Just ballpark figure, in Q4 itself do you think recoveries can be much better because if it is NPL, already recognised and largely provided and you are selling it. It comes straight to the bottomline? So a recovery number for this quarter, for first half of next year?
A: It is difficult to give timelines like that because these are big units, these are big deals. They do not happen just like that. As I said transparency is the demand of the day, transparency has a cost and that cost is mainly the time cost and therefore if you are even looking at doing certain changes or asking people to bring in strategic investors, there would normally be two or three parties who would want to do a lot of due diligence before they put money on the table. Therefore, expecting this to happen in the next three-six months is stretching it a bit. However, the earlier timeline that the central bank had given March 2017 - that seems to be more realistic timeline. So we will be seeing certain turnarounds during that period. We are hoping that most of them will be able to do something. However, there maybe a few where we may still may not be able to find solutions but at least I am confident that a lot of them will find solutions mainly because the NPLs this time, most of them are backed by solid assets, the quality of the assets are good, the demand in this country, god willing, is something that is not there in most of the other countries. So there is a lot of domestic demand and hopefully as the government's large projects kickoff and by large projects I mean thing like the dedicated freight corridor, the Sagar Mala project, the diamond quadrilateral for the train lines and things like that, as they kickoff surely these assets will be performing assets._PAGEBREAK_
Sonia: The comment that you made post Q3 numbers that the NPAs will rise in Q4 as well and that has been the big worry of the entire street for the industry as a whole. To get a sense on what we should be prepared for in Q4. In Q3 you had an AQR slippage of around Rs 15,000 crore. Should we be ready for similar amount in Q4 as well and from this 5.1 percent gross NPA level, how much do you think it could go to?
A: I won't be able to tell you the exact gross NPA levels right now. However, of the AQR exercises, we had taken about 50 percent of them. The 50 percent that we kept out were units where discussions were at a very advance stage. I could have taken it all in one go but it would not have served anybody's purpose because we have discussions at an advance stage. The moment you classify, if I was getting 70 paise to the rupee, I would then land up with 50 paise or 40 paise to the rupee. So you need to be able to maximise whatever value you can and therefore it is important for us where advanced conversations are going on to be able to retain the asset quality and to bring some completion to those exercises and that is why some portion of it, we have not yet recognised depending upon whether we get resolutions or not, we will have to take a call on recognising them or otherwise and that is why in the last quarter also you may see similar amounts and that is how we have guided investors, that is what we have told the press also immediately after the quarterly results.
Latha: What is the kind of capital adequacy you sit at now especially tier one and what are the non-core plans. Should we see some increase in capital this year itself or largely in the first half of next year?
A: This year we are very well capitalised. Our tier one is 9.6 and all of that is common equity tier 1 (CET1) so we are well above the RBI norms. The growth also is something that is not over much. It is around 12-13 percent which we are more than capable of handling with the kind of capital we have. Going forward in the first half of the next year we will see whether that is the right time. As you know existing shareholders also do not like to be diluting much. So we have to see. We have to create a balance between our needs and what we see is the requirement for growth. So we will be doing that.
However, regarding noncore assets yes, some amount of things we will do especially by March 2017 whether it be in the area of noncore investments or whether it be in the stake sale of some of our subsidiaries, well performing subsidiaries. Those are two areas we are looking at very closely and we will definitely take a call on that.
This year, I do not think we will raise anything other than tier two. We have already tied up about Rs 6,000 crore of tier two for this quarter and that would be it.
Latha: RBI was talking about even recognising real estate with a haircut for tier one. Tier two requires some 45-50 percent haircut, any progress on those stocks. Do you see real estate coming into tier one category?
A: This is something you should ask the regulator, not me because they are not consulting us on this matter. Currently you can take real estate. You have to take 55 percent haircut and put it into tier two. Under Indian Accounting Standards (Ind AS) however, the whole of the real estate can come into tier one but it kicks in from April 2018. So that's one other way of capital can probably come in.
Sonia: What is your expectation from the Budget in terms of 1) the public sector undertaking (PSU) recapitalisation plans of the finance minister has, what is the amount that could be expected and 2) any other reforms for the banking system that you expect?
A: I do expect some amount of additional recapitalisation that the government will announce and I know it only from media reports because I have been reading about in the media. However, if you put it into perspective as to what is the capital that has been given to banks, if you look at the period between 2008 and 2016, the amount of capital given to Indian banks is about USD 13 billion. If you compare that to China, China in similar periods of time gave USD 127 billion as capital to its banks and if you look at the US, they gave USD 2.7 trillion. So you can understand that it is driven by the size of the economy and therefore well capitalised banks are able to perform that much better. I think everybody recognises that and therefore we will definitely hope to see some nice numbers regarding capitalisation.
The second thing is regarding what we believe is required for the banking sector. Currently one of the biggest challenges that we face is the speed of resolution. It is far worse and inefficient than what it is in many other nations and we need to seriously look at finding ways of doing this resolution within fixed periods of time like within six to nine months and for it to be done in a manner that the questioning is minimal. So you have to create much more trust in the system as well as ensure better ways of doing this, so that it can be done as efficiently as possible and we need to preserve value for all stakeholders considering the fact that India needs a lot of employment, we should not allow employment to get impacted when such problem arise. So these are issues that we are definitely looking at. We are also looking at ways and means where cash could be disincentivised because cash is a big burden on everybody including our tax payers and then it also does not do for efficiency of the system. So you know whether plastic can be incentivised in many ways also because we happen to be sort of the social security net for the retired people, so whether there could be something which could help this generation, the pensioners specifically from the banking system. I think these are sort of things we are looking for.
Latha: You guided that you will take the AQR hit, the slippages hit equally over two quarters. We saw 28 percent rise in your gross NPLs, assuming a similar amount in Q4. Can we assume that FY17 will be far lower?
A: Yes of course. If you are going to do some cleanups and that's why the Q3 cleanup could even be a bit more. So the idea will be that FY17 should be a much better year. So we will try to do as much as possible in the last quarter and make sure that in subsequent quarters we are able to recover very quickly.
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