CNBC-TV18's Ritu Singh is in conversation with State Bank of India (SBI) Chairman, Arundhati Bhattacharya, at the side-lines of the Centrum Conference.
Below is the verbatim transcript of the interview.
Q: Public sector non-performing assets (NPA) and for the whole system as a whole, we have crossed that double digit mark, over Rs 10 lakh crore now as of last quarter and you said the steel sector alone is about 19 percent NPA levels at the moment. On the other hand, you also spoke about this vicious cycle where it is difficult for banks to lend to assets that are non-performing. What is the way out from here, you have raised several points in terms of resolution and what could be done to improve the performance of the sector but from the banks perspective what is next if you can’t support these industries to bring them out of the current crisis?
A: At the end of the day risk is in the micro, not in the macro and therefore you should not go with the percentages. The percentages at this point of time are looking large because there are some three or four very large units over there. You resolve those three or four units and the percentages will come down immediately.
The second thing is you have to look at potential. You have to look at units that have all of their various pieces in order meaning that they have the right kind of equity structure, they have the right kind of governance structure, they have the right kind of mix of products, and they have the right kind of margins. Now if you have units of this nature, I see no reason why the banks will not support them.
You have to understand banks are cautious, as they should be, but it does not mean that they have stopped lending. That is not the case at all.
Q: Many of these large steel companies are currently also under the Insolvency and Bankruptcy Code (IBC) at National Company Law Tribunal (NCLT). What has been the progress so far, are there domestic players that have come forward?
A: This is early days as yet, because even today I think the committee of creditors has not yet been formed in respect of any of these resolution cases. So today I think the stage at which this is going on is that claims have been called for, so all those who are creditors have been asked to submit claims.
Once that is seen and the committee of creditors is formed, at that point of time, I think bids will be called in respect of those who are interested in being part of the process of resolution. So, I think that is a little way of as yet, but having said that, all of the steps that were required to be done, are taking place within the stipulated timeframe.
Q: In your time you have seen everything from joint lender forum (JLF), corporate debt restructuring (CDR), strategic debt restructuring (SDR), Scheme for Sustainable Structuring of Stressed Assets (S4A), now IBC, how hopeful are you of resolution from this particular mechanism as oppose to what we have already seen so far?
A: I think this particular mechanism is probably the mechanism that everybody was aiming at. The interim ones were provided because this one was not there and world over this was how it is resolved. So if world over this can be done, I see no reason why it should not happen in India.
Q: We are talking about some very large assets and god forbid if it goes into liquidation stage, there are huge losses for the system?
A: At the end of the day you have to understand that everything may not really come out with a resolution process or rather a solution through this resolution process. However, we are still hopeful that in respect of all of those assets where there is still activity going on, where the prognosis or the upside seems to be large, we will not have to go to liquidation. Why should anybody allow that to go into liquidation knowing full well that this is something that can yield you a very good upside?
You can always talk about the worst case scenarios, but I don’t think we should waste time on that. The time that will be spent on doing all of this is not overlarge, between six to nine months of which one and a half months or two months are already over. So, I think we should just bide our time and see how it works. We believe that it will work.
Q: Steel is one industry, is power the next big sector that needs more focus and attention from the government in terms of support, is there stress building up there?
A: Power already is receiving a sufficient amount of emphasis and attention from the power ministry. The Power Minister himself has taken a number of sessions, and they are looking to see how are those assets that are just about to come on-stream or very close to completion, how they are to be supported. So in the next few months, you will see many initiatives that will be taken in order to support this.
At the end of the day, you must remember, just like steel, even per capita power consumption by Indians is far lower than what it should be. So, though we have sufficient amount of power, but the per capita consumption today is very low which is why we have sufficient amount of it. Once that per capita consumption can be raised through ensuring that electrification occurs, that people are empowered to draw electricity and use them, we have to think about ways and means to ensure that people are actually able to use power, in the sense that they should not be in such a state that they are not able to pay their power bills.
Q: Is it going to be the next big steel sector kind of a situation?
A: I don’t think so.
Q: What proposals are the banks working with, would you think of a one-time settlement again with these power companies?
A: No there is no such proposal of a one-time settlement. Again, as I said, all of the instruments opened for the rest of the industry is open to the power industry as well. There is no one solution that will fit all. We will take the solution as they come and then work with them. I don’t believe that it will be another steel industry issue.
Steel industry also got impacted very badly as you know because of certain dumping that happened and as well as with the dampening of demand, so, both ways. Here in power we are expecting that the demand will come up because electrification of all villages is a mandate that is already been given by the government. Besides that, we are also looking at industrial activity increasing; with that demand for power will also go up.
Q: The next 6-12 months will be very crucial because we are undertaking some large asset resolutions and the very key to that is capital. With the current situation as it is, you are one of the better capitalised banks, but even then is there enough capital support at the moment for these resolutions to go through?
A: Yes, I don’t think that should be a problem. That will definitely not be an issue. I cannot possibly give you an assurance regarding the public sector banks, I am not privy to all of their numbers; I can only assure you on respect of our bank. I think we are quite well poised to ensure that these resolutions go through. We are expecting pretty good upside in all of this. However, of course this is something that is in the realm of expectation. We have to see how it pans out in the next few months.
Q: You are the only public sector bank of recent times in this current environment where NPAs become such large issue undergoing a massive consolidation and that is what the government is proposing going forward for other large public sector banks. Do you think that is the next step resolution, merging weaker banks with stronger one, is that conducive in current environment where there are other issues that banks are grappling with?
A: Consolidation has to be undertaken for a number of reasons. Consolidation cannot only be undertaken because of lack of capital. That would not be the right way to go forward with it because any consolidation that takes place, takes a very large toll on both the organisations and that can only be justified if you see going forward it will be an entity that will be bigger, stronger, and more efficient.
If you are not going to be all of these, then just to do it because one particular unit has less of capital, may not really be worth it. I don’t think that is what the government is proposing either. The government is also now very clear that they want those units to merge which will be stronger going forward and be better able to take on the challenges of the market.
Q: What would be the ideal scenario then, should we look at banks in the same region, should we look at similar profitability, what would be the ideal mechanism?
A: As I said, I don’t think we can force everything into one bottle fits all. It will not work like that. People will work for strategic considerations, people will work for size, people will work for agility, and people will work for technology, so there are as many solutions as there are problems.
Q: But now when the sector is in the middle of a large cleanup, is now a right time to look at consolidation?
A: In fact I would say that when you are already having challenges, it is better to take on more rather than wait for the good times when you should concentrate on doing banking. You should not waste or fritter away your energy at that point of time in doing something like a consolidation. That is one of the reason why we undertook it now because we think this is the best time to do the consolidation. We already are going through a cleanup, a shakeup, and all of it, so might as well take it on now, get it over with so that when the upturn comes, and it is definitely going to come, we are totally prepared for it.
Q: What makes you so confident the upturn is just around the corner?
A: It has to come, I think it is not only a question of the fact that we have been waiting for a long time, but I think several little pieces are now falling into place. This government has been there for three long years, they have put into play some very major reforms which are beginning to take root.
They also are very keen on promoting a number of things including things like smart cities, better infrastructure, revamping of the railways, much more road construction, the affordable housing piece. So lots of pieces have been put in place, the policies for all of these are in place. Now it is a question of actioning those policies and I think everybody is working on that.
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