Beena Parmar Moneycontrol News
Credit growth revival and resolution of bad loans are the immediate challenges before State Bank of India, says the newly designated Chairman Rajnish Kumar.
A day after the announcement of Kumar succeeding Arundhati Bhattacharya to head the country's largest bank, he pointed out that muted corporate credit is a cause of concern and the bank will look at extracting the maximum enterprise value from the non-performing assets (NPAs) under resolution.
"Top priority is reviving credit growth and resolution of stressed assets. We are also in the process of reforming the HR (Human Resource) in a big way. It will be done for attracting talent, nurturing and improvement, succession planning and a whole gamut of HR areas under project Saksham...We will present (in 30 days) a blueprint for the next 36 months," said Kumar, who takes over as Chairman on October 7.
On the resolution of NPA cases, Kumar said the bank "will definitely review the bad debt situation and if any course correction is required we will look at it".
He added that each case at the NCLT is different and one single case cannot be a benchmark for haircuts in insolvency cases. "Every case's enterprise value will be different."
Liquidation is the worst option as recovery will be the lowest. Hence, the decision will be based on what will derive the best value. So, the first aim will be to not reduce the enterprise value of the asset," he stated.
Interest rates
Speaking on the RBI's suggestion to link lending rates to external benchmark, Kumar said, "Pricing of a loan product is not done based on the risk premium which gets linked to the delinquencies, credit score and history of the borrower... Where the delinquencies are high and hence credit costs are high for the bank, we will necessarily charge higher spreads."
An RBI study group on Wednesday recommended that banks "could be advised to re-calculate the base rate immediately by removing/readjusting arbitrary and entirely discretionary components added to the formula."
The group suggested linking lending rates to 3 external benchmark rates and said that if the RBI adopts the full proposals, it could mark a tougher line against banks that fail to pass on its rate cuts, though much would depend on how tough the central bank is willing to be in enforcing the rules.
Overall, the transmission of policy rate cuts of 200 bps or basis points (2 percentage points) since January 2015 has led the median base rate of banks to decline by only 75 bps, while MCLR rates have been reduced to 110 bps.
“Arbitrariness in calculating the base rate/MCLR and spreads charged over them has undermined the integrity of the interest rate setting process. The base rate/MCLR regime is also not in sync with global practices on pricing of bank loans,” RBI had said.
Responding to this Kumar said, "To a certain extent the arbitrariness comes in only because we are working in a competitive environment. So, sometimes when the market is such, banks are not able to charge more when the risk premium is high, it is not the way round."
With major merger process over in a "smooth manner" Kumar says the focus will be on retaining talent and reviving credit growth which is expected to be at 6-7 percent.
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