Consumer loans are growing at a good pace but corporate credit growth is still muted, said Rajnish Kumar, Chairman, SBI.
Speaking from the sidelines of the World Economic Forum at Davos, Rajnish Kumar, Chairman, SBI told CNBC-Tv18 that the project pipeline is still not as strong as one would like to see and the project finance growth has not picked up pace as expected.
The corporates are now gradually coming out of deleveraging problems, he added.
With respect to 12 larag NCLT cases from the first list, the decision is likely by end-March, mid-April, said Kumar and other lists would follow. IBC has made debt resolution a time bound process, he said.
Talking on loan growth, he said consumer loans are growing at a good pace but corporate credit growth is still muted. However, one is seeing a big turnaround in steel sector and it is seeing a lot of interest as per the references sent to NCLT, said Kumar.
According to him, the PSU recapitalisation bond allocation will happen before the Budget.
Below is the verbatim transcript of the interview.
Q: Foreign investors continue to be optimistic about the India story the question now is about domestic investors and whether we are starting to see investing change and the invest climate change when it comes to domestic investors. What is your own sense in terms of project sanctions etc?
A: Project pipeline is still I would say is not as strong as we would like it to be but otherwise we know that domestic large corporate houses they had some problem on the leveraging, many corporate houses they had issue on the asset quality front so we are gradually coming out of that. Once that happens then we can see better investment climate in the country.
Q: You are saying gradually coming out of de-leveraging problem. National Company Law Tribunal (NCLT), the first list and the second list how confident do you feel about things moving on both of those?
A: Right now they are on track. Of course in most of the cases there was a time extension of 90 days which is permitted as per the process but quite a few cases, the resolution plans have come in and they are being evaluated. So, the first list which was referred, sometime in July and August I am really hopeful that by end of March or mid-April at least for those 12 large cases, the decision would have been taken.
Q: By April or March for the first list?
A: For the first list, and then it is a continuous process and now it has become a continuous process for the banks and the financial creditors also that wherever they feel that resolution or any settlement is not possible or not seeing the light of day the best course of option for the financial creditors and as well as operational creditors remains that they go to the NCLT and initiate the process under the insolvency and bankruptcy code. So, that way it has become some sort of a time bound process and has brought a lot of timed decisions.
Q: What about the second list, if you are saying first should get resolved or at least meet with some kind of conclusion by March or April then what about the second list?
A: Second list was all November and December so that would be somewhere in June or July before we can see the resolution plans coming in. But in any case that should not be now become the part of the normal process.
Q: What is your own sense on loan growth because it has flattered to disappoint so far what is your own take on that?
A: If you look from sector specific then consumer loans are growing at a very good pace and there has not been any slowdown. The corporate credit growth continues to be muted which it will remain again for some time because as we press that the corporates have to deleverage, that is one. Second is the sectors where there is over capacity then people would not like to invest. But investment will definitely be the sector specific investment.
One big turnaround story which I am seeing is around the steel sector where everybody is bullish and one and a half years ago there was lot of gloom and doom around the steel sector.
Q: Steel you are seeing a recovery?
A: Yes, recovery and that is evidenced by the fact also that in all the steel sector references to NCLT there is lot of interest amongst the investors both domestic and overseas. So, this is a sign of the things to come. Steel sector is one sector which is one of the core sectors and which indicates shape of the things to come. If steel sector people are not bullish it means that they are bullish about the overall economic recovery.
Q: The Prime Minister is going to be talking about the reform agenda and one of the achievements that the government would like to talk about here is the PSB bank recap plan. Any more clarity now on when and how much we are going to start to see come in to specific banks?
A: Rs 80,000 crore is what this year's plan is and this is in addition to what the some of the banks have raised capital through qualified institutional portfolio (QIP) and this thing so Rs 80,000 crore is the recapitalisation bond and Rs 10,000 crore was from the budgetary support which has already been announced and given to the banks. This allocation I am expecting that this should happen much before the Budget
Q: Before the Budget?
A: Yes. So, next week the allocation details should be coming.
Q: How much you are expecting?
A: State Bank of India, I have always said that the way to view State Bank of India is so you could be either at bottom of the ladder or top of the ladder. There is no in between for us.
Q: What is the likelihood of you being top of the ladder?
A: If not this year then definitely next year because at this juncture, there be maybe more pressing demands for those banks which are falling short of the international capital adequacy requirement so they also have to be given priority. But going forward definitely what I feel is that the remaining capital, the more allocation will be coming for the growth and this time probably the allocation would be more to meet to the capital adequacy requirement, this is my sense but ultimately it is a matter of a few days.
Q: Do you think consolidation is likely to be a theme in 2018 in the public sector banking space or do you think that perhaps it would be a little longer.
A: It will be a little bit longer. In 2018 the capitalisation, the clean-up, the resolution all this should happen. The bank will need to put down their business strategy also in place that going forward what change they need to bring in their business strategy and once that has been done and the banks become stronger and come out of the current positon which is not very strong so once they come out of that then one can think of consolidation.
Q: What is the outlook as far as rates are concerned? Do you expect a pause now given where inflation is for some time, what is the outlook?
A: My feeling is that interest rates of course the change in yield of the government bonds which was about 100 basis points so the banking system probably was not expecting but going forward and given the outlook for the inflation and the growth in the economy I don't foresee that there will be any major change as far as the repo rate is concerned.
Q: What are you factoring in terms of growth as well as for the economy?
A: Economy, our internal research indicates about 7.1 percent that is the State Bank of India Economic Research Department's estimate and credit growth in 2018 we are pegging for SBI at around 9-10 percent.
Q: In non-performing assets (NPAs) do you believe that the worst is behind us now and what can we expect now?
A: I would say that worst is behind the banking system because the fresh accretion to NPAs that has tapered down and as the resolution starts happening then the gross NPA as well as the net NPA number should start coming down.
Q: There has been a lot of criticism of the revenues stream that you have been able to capitalise on account of the non-maintenance of minimum deposits, is that something that you believe that consumers are right to be upset about?
A: The question is that how do you again look at it. When it comes to the numbers State Bank any number is always a last number. When we are having 42 crore account and even in that 42 crore account 15 crore are the BSBD accounts or the accounts where there is a complete exemption. We don't charge senior citizen, we don't charge where people are getting social benefits, we don't charge students so there is a complete list of exemptions and our charges are also very moderate. But because the number of accounts is so large that is adds up and the people quote the number so I think it is all about public sentiment and it is very difficult sometimes. I may have so many arguments in favour of State Bank of India levying the charges, we do a lot of expense Rs 4,000-5,000 crore on technology where the most of the spends goes is on the payment systems maintaining savings account, maintaining current account. So, there is a cost associated with these accounts, maintaining these accounts. Crores of account are there which are inoperative so our idea is that the account should remain active and it is a savings banks so it was designed in such manner that we will need to have some savings in those accounts but these are the bankers' argument. They do not cut ice with the general public, I am aware of that.
Q: The Prime Minster is going to make a pitch about how India continues to be an open economy, the pitch on foreign direct investment where we have liberalised across sectors. There is again a lot of conservation, it is only conversation at this point in time, of 100 percent FDI in the banking sector and even in public sector banks are concerned to move this ceiling from 20 percent to 49 percent. If that does go through and it is 'IF' because it has seen opposition in the past for a reserve bank what to your mind, what is the impact?
A: No, I will wait.
Q: But good, bad, what?
A: Very difficult to say
Q: Will it be meaningful for PSB?A: Public sector banks I think yes if there is more foreign direct investment permitted so the valuations are likely to go up but that will again go up in respect of those public sector banks where they perform. I take example of State Bank of India. So today the foreign direct investment or foreign full investment in SBI is much below what is permitted. So, you have a higher ceiling but the people will put money only when they see that they are going to get an expected return on that investment. So, one is the enabler, so government can be enabler but the actually investment will depend entirely on the performance of that particular bank.