Expect slippages in Q2-Q4 to be lower than Q1: SBI

He expects further slippages of Rs 13,000 crore in retail for FY18.

He does not expect surprises on corporate slippages outside of the watchlist.

Kumar expect slippages in Q2-Q4 to be lower than Q1.

"Q1 in terms of non-performing assets (NPAs) is a worst and as you move into Q2, Q3 and Q4; Q4 is always the best," he added.

Below is the verbatim transcript of the interview:

Latha: This Rs 30,000 crore that you reported, how much of it is from mainline SBI and how much of it was from the subsidiaries?

A: Now State Bank and erstwhile associate banks is one and the same entity. We do have some idea as how much is coming from SBI and how much is coming from erstwhile associate banks but Q1 has been unusual and that is what we mentioned in our press conference and the meeting with the analysts also. There were several factors, if we even look at the geography where NPAs have occurred, its mostly the geographies where merger impact is maximum except for State Bank of Mysore in Karnataka, State Bank of Travancore in Thiruvananthapuram, State Bank of Patiala in Punjab, Haryana, Jammu & Kashmir and Himachal Pradesh and Mumbai to a large extent but it isn't an impact of merger, it is an impact that there were announcement and there are certain issues relating to the recovery of equated monthly instalments (EMIs) and one more factor was the dispensation which Reserve Bank of India (RBI) gave and what happens when once the account is overdue more than three instalments and if it has to become standard, all the three instalments have to be recovered. So something that becomes immediately very difficult, but now going forward the entire machinery is fully in control, geared up. There are issues which I mentioned, so at least retail book as well as corporate book you would have seen - even in the corporate book 95 percent of the slippages came from the watchlist. So to that extent I would think that going forward the situation is going to be much better as far as the stressed assets are concerned.

Latha: Even through last year you were aware of your subsidiaries. The investor has no idea of State Bank of Hyderabad and State Bank of Patiala, they are unlisted entities but the mother SBI would always have known what the quality of the book is. We had no inkling at all - even on June 9, when you did the qualified institutional placement (QIP), were investors aware that this is going to be the quality of the subsidiaries. This is as bad as United Bank or IOB or Dena. We know there are weak public sector undertakings (PSUs) but we always thought probably the SBI subsidiaries would be around 10 percent. Nobody was prepared for 20 percent?

A: I agree that the quality is a bit of a surprise and I must admit that, but I told you the factors, which I just enumerated. So when you are doing a merger of 6,000 branches, I agree there will be some realignment issues around how the subsidiaries were classifying, for example agricultural loans and SBI practices where we were more upfront in recognising problem in the agricultural loan, but P Segment is very effort intensive as far as the asset quality goes. If you alert and the follow-up is good then the P Segment can be brought under control very quickly and there the surprise came was to some extent was from the P Segment also and there the reasons were entirely different. So three different segments - agriculture, small and medium enterprises (SMEs), our retail classification or the way we handle this maybe different from other banks. So essentially what we call national banking group or retail asset, it is SME, it is agriculture, it is housing loans and it is P Segment. So definitely P Segment, the problem relating to putting the PDCs and EMI, change of account numbers, several issues were there. Agriculture has been definitely impacted by the loan waiver announcements in our bank.

As far as RBI dispensation is concerned, it is majorly SBI. Out of 2,000 crore 1,600 crore is SBI. Other banks, they did not avail of that much of benefit under RBI dispensation.

Reema: How have you arrived at your FY18 guidance of reduced slippages of 3.3 percent and credit cost coming down to 2.25 percent. Could you tell us what assumptions or what is baked in when you give us this guidance for FY18 on two parameters?

A: If you look at the slippages, we have said in the retail side Rs 17,000 crore, we are expecting to be Rs 30,000 crore. So we are looking at, in the next nine months, about Rs 13,000 crore fresh slippages. For the corporate the watchlist is Rs 24,000 crore. So that way the numbers which have been given are after very careful analysis and the current trend would also justify that. So the retail book as of now, agriculture SME, real estate in the sense housing loans and consumer loans, so that book alone is 9.5 lakh crore and 2 lakh crore is overseas book and rest is corporate and mid-corporate. So corporate and mid-corporate, again I am repeating the same fact that the watchlist which bank has given, so there are no major surprises as far as slippages are concerned. Slippages are not coming other than what was in the watchlist. You have to always allow 5 percent for that. So the number is 3.3 percent for SBI exceeds Rs 50,000 crore because our loan book is Rs 19 lakh crore. So it is not that in Q1 if it was Rs 30,000 crore so every quarter it is going to be like that.

Latha: So because you have to get to 3.3 percent, we can be reasonably assured that this is the highest number and it will get lower in Q2, Q3 and Q4?

A: You will see that.

Latha: Even about credit cost - what have been the assumptions? You say the credit cost will fall to 2.25 percent from 2.48 percent currently. Have you factored in, of the 11 cases that have gone in the bankruptcy code, have you provided all the 50 percent needed and you have another bunch of companies which in the next six months have to be resolved or they will also be taken to Insolvency and Bankruptcy Code (IBC) and you have to provide for them also? So what are the assumptions of 2.25 provisioning?

A: Its same thing as I said like 2.25 percent for SBI means provisioning of nearly Rs 40,000 crore, which I believe is reasonable. So in Q1 also the provisioning requirement has been about Rs 12,000 crore - that is what the loan loss provision has been done on the stressed assets and NPAs. So if we project it, there also the guidance is very reasonable and the provision last year, if you look at it, which is a lot of corporate account cleaning up happen, so last year on a consolidated basis the provisioning was Rs 55,000 crore. So it is going to be much less than that.

For entire interview, watch accompanying video.