Sub-9% marginal cost of lending rate is doable soon: SBI Chief

She maintained that a sub-9 percent MCLR (marginal cost of lending rate) is possible very shortly.Below is the verbatim transcript of Arundhati Bhattacharya’s interview to Latha Venkatesh on CNBC-TV18.Q: First up the Brazil, Russia, India, China, South Africa (BRICS) summit quite clearly is a success. One of the big deals with Essar and Rosneft has been struck. Can you give us your reactions to that alone? What kind of an impact it is for the banking system?A: In a way it is a good deal, in the sense that the Essar Group will at least get some amount of money because of the sale of their equity. The Essar oil debt will also now move to another organisation, which will probably be a better risk given the dept that they have of operations. So, all in all it is a good deal. I am hoping that this will help the Essar Group also to bring down the leverage as well as the stress that they are experiencing in many of their other accounts.Q: You have any idea whether that a little bit of money can come as promoter contribution to Essar Steel?A: Very difficult at this point of time to say whether that will happen. The promoters have been saying that it will happen. So, at this point of time we have to go with what they are saying. However, the proof of the pudding is in the eating, so we will wait and see what happens.Q: Will it be possible that you will be able to segregate a sustainable and unsustainable debt for Essar, looks like a good candidate?A: Depending upon the kind of equity that is brought in yes, we can have a look at it. However, again all these options are on the table. It all depends upon how things work out.Q: You expect a solution at all?A: Some solution will happen, now what kind of solution is very difficult to say at this point of time. However, I think all of us are very focused on the fact that now that so much of identification has happen it is time that resolutions also start happening faster. I will not say that some resolutions haven’t happened.Some resolutions have happened, so you have turnarounds like Haldia Petrochemicals, you have Suzlon, which is doing much better now. You have Jindal Stainless again doing much better, so you do have turnarounds may be you don’t have that many turnarounds and then there are still some 10-15 very large accounts, which have stress but we are working on all of them and we do believe that we will be able to find some solution.Q: Brookefield also have taken off some assets from Reliance Telecom.A: That is right, so they are also deleveraging very fast, which is as per the plan that they had submitted to us. So, most of this large corporate houses have given us plans as to how they have intended to do take things forward. Many of them are proceeding as per plan. Some of them are delayed but then we have to wait and see how things work.Q: From 2012 onwards you must have read the Credit Suisse house of debt which kept increasing because obviously there was more debt being taken. Now do you think FY17 will be the year when that will show a reduction?A: I definitely think so and if you have read our house research, which countered this house of debt theory by saying that there were a lot of good assets and those were not being considered when you are looking at house of debt. In fact in some of those cases the numbers that had been taken were on account of the loans taken for acquisition but they didn’t take the cash flows from the acquisitions.So, I don’t think that is the last word in the entire matter and definitely as these assets change hands or parts get taken out that will help these corporate to bring down the leverage.Q: We can expect an Essar Steel resolution you think, one last question on that issue itself? I am sure there will be the resolution but will it be in this fiscal?A: Very difficult as I said, we definitely do not want it to exceed March 2017. By March 2017 we hope that we will be able to bring resolutions to few others as well not only Essar Steel. We are working on those lines.Q: This Scheme for Sustainable Structuring of Stressed Assets' (S4A) now being tweaked, so that sustainable debt will not be counted in the bad loan, will not have to be provided for is a big relief?A: It is definitely a big relief and we believe that if it is sustainable, there is no reason for keeping it as restructured because the cash flows are there in order to sort of support it. However, we still believe that S4A may need a few more tweaking and we have been talking to that Reserve Bank of India (RBI) about it. One of course is on the interest rates, which they had said should be the same as now which is not feasible because currently most of these have penal interest rates, so it should be a normalised interest rate.The second thing also we believe that is that we should be allowed to take cash flows of more than six months. Because the six months is a very short period of time and that too you are looking at a stress period. You are not looking at a better period. So, to that extent also we have been saying that we should be allowed to take a little longer period may be a year’s period, which will also ensure that the sustainable debt portion is also of a amount which is correct instead of something that is very low. So, all of these things we have been talking to the regulator about and we don’t have their decision as yet in the matter but let us see how things go.Q: There were some bankers who were saying even 50 percent minimum sustainable debt should be rethought. In some cases, even if it is 40 percent, we should be allowed to recast 60 percent.A: The main thing is the sustainability and if you really take a hair cut of that nature then is it worth all of the trouble? If you are just going to do it at 20 cents to the dollar, you might as well give it to somebody else and be rid of all the trouble. But, if you are doing it for a bigger amount then obviously, it makes sense to keep it on your balance sheet. So, we have to take a reasonable and a practical call in these matters.Q: Has the Brookfield’s arrangement with you led to any distressing in smaller accounts?A: No, not at this point of time. They are still looking at deals and we have not yet come up with the first deal. These things take time and specially for funds, when they come in, I always say that it takes at least two years for them to get going. So, to expect that it will happen so quickly is being a little too optimistic, to greedy.Q: But it is true that they also come with an internal rate of return (IRR) expectation of 15-18 percent and the reality on the ground is very different.A: But frankly, it is not that they have very unrealistic expectations. The expectations may be slightly on the higher side, but I do not think it is unrealistic. It can be done. What is required is for them to get the comfort that they can make it work and that is something where people are still a little cautious because the Indian environment is such that it is still not very easy for people to just come in and start doing business. We have done a lot on ease of doing business, but we need to do even much more.Q: The fall in interest rates in the bond markets, and we can see marginal cost of funds based lending rates (MCLR) getting sliced off month after month. Will that also make a difference to relieving stressed assets? It will be applicable to them as well, is it not?A: Absolutely. It will be applicable to them and definitely, it will make for relief and as you can see, the accommodative cycle is there. You have seen the wholesale price index (WPI) numbers, you have seen the consumer price index (CPI) numbers. So, the rates will come down. There is no doubt about it, it will come down month after month. Yes, it may not come down in 25 basis point dollops, because we have to also reduce on the deposit side, which makes it very difficult. People do feel a little aggrieved if your deposit rates keep going down so much. So we have to balance the whole lot, but I do think that rates will come down. They will come down quite sharply.If you look at it over the year, you will find already this year we have done 30 basis points, before that we have done 65 basis points. So, till now, we have already transmitted 95 basis points of the 175 basis points of which 25 basis points has just come after our last revision. So, if you leave out the 25 basis points, of the 150 basis points, we had done 95 basis points. So, of the 175 basis points, we have to see how much more we do and I can assure you that it will definitely come down. Yes, it will be a relief for many of the stressed accounts, however, what will be a better relief is demand coming back. That is what is going to -- it is like the tide, if raises all boats. So, as and when the demand comes back in the economy, you will see everybody doing much better.But, one thing I would like to share, just recently, we had one of our weekly board meetings and I was commenting there that for the first time, I saw more accounts there with upgradation of rating than downgradation of rating. This was of course a one-off, I will not say that it is -- these are like straws in the wind. But the fact of the matter is yes, it is something that pleased me because after a long time, I was seeing more upgradations than downgradations.Q: So, a sub-nine percent MCLR is possible you think in next six months?A: Yes, very shortly.Q: You are looking at selling a bit of stake in your insurance joint ventures (JV) do the valuations improve a goodish bit because of the two listings?A: I should think so, definitely because now there is a price discovery and I believe our insurance company is very good. There are several things that is better for them than the two that have already got listed. So, to that extent, the price discovery is there and definitely, some benchmarking has occurred, so people will come in with more confidence.Q: ICICI Bank is going at almost 3.5 times embedded value, so you would expect that you could get at least that?A: Surely, and more because if you look at our range of products, our product range is greater, our margins are better, our cost structure is better because in fact, SBI Life has the lowest cost structure in the industry. We have a very strong distribution channel and this channel is becoming better. In the last two years, this distribution channel has become much better and is getting better by the day. So, we have a lot going for us.Q: So, we should hear something for this fiscal?A: Hopefully, yes.Q: In that case, you will not need more capital from the government?A: At this point of time, no. What they have already offered us that is around Rs 7,500-7,600 crore, that of course, we will be taking. At this point of time, no, it is not required. But then we would look at good growth and for growth, we need capital.Q: But, is that growth there around the corner? Can you smell it in the festive season?A: Growth in the rural, agricultural and per segment is good. Especially the agricultural segment has done very well this year, but in the corporate side, I still think it is a little way-off because we do not have that pipeline of projects as yet. That pipeline of projects gives you that comfort that things are going to happen. On the working capital side, as I said, the commodity prices are not high. And therefore, the need for greater working capital is not there unless there is some difference in the working capital cycle. Somebody was importing something, not importing it, needs to have greater stock now. So, that kind of a thing, unless it happens, the need for greater working capital is not seen. So, because of these twin things, on the corporate side, we are still a little far-off, but it will happen.Q: What is your number? 11 percent?A: Yes, I should think so. I hope so, definitely and let us hope we achieve it.