EXCLUSIVE: SBI needs to be watchful about corporate NPAs, COVID-19 impact, says Rajnish Kumar

Rajnish Kumar’s three-year term as State Bank of India (SBI) Chairman was a roller-coaster ride from Day 1. A pandemic, a private bank bailout and a deep economic slowdown – all happened during his term. Kumar played a key role in bailing out Yes Bank. During his tenure, SBI has substantially cut down the chunk of toxic assets and successfully completed the amalgamation process of its associates.

In an exclusive interview with Moneycontrol, Kumar opened up about the challenges he faced.

Edited excerpts:

How tough was your three years as SBI Chairman?
Kumar: There were many challenges in the last three years. When I took charge, the merger process (with associates) was on, and then AQR (asset quality review) happened. There was significant stress on the books. And, of course, IBC (insolvency and bankruptcy code) also happened during that period. Having said that, I feel one can get tested only when there are challenges. If you are only doing your routine job, there is no excitement. That’s how I have managed this time. Challenging, but exciting.

What were the toughest parts?
Kumar: The first and biggest was to put the balance sheet in order. There was some hesitance in the bank about declaring a loss as part of cleaning up the book. This is SBI, how can we declare a loss, this will be bad, they asked. I had to convince them it is not like that. But, it doesn’t mean that the entire organisation was fixated on one problem — NPAs (non-performing assets).

How did the NPA battle go?
Kumar: The challenge was to get a handle on the NPA resolution by strengthening the stressed assets resolution. So, all NPAs that were spread across were brought into one group and very competent people were posted in that group to handle NPAs. This has shown results. At the start itself, that was the biggest challenge.

What are the biggest pain points in NPA management at this juncture?
Kumar: It has always been corporate NPAs. Corporate NPAs are what causes the biggest problem. Now, of course, net corporate NPAs are just Rs 10,500 crore, which is virtually nothing. What I’m saying is that the bank doesn’t get impacted by retail as much as by corporate NPAs. At one point, it constituted 25 percent of the corporate book in NPAs and that was the whole cause of the problem. Now, it has been brought down. But, you have to be very careful. Retail is manageable.

You have an Advance Under Collection Account (UACA) for chronic NPA cases
Kumar: AUCA is essentially an accounting entry. The on-balance sheet NPAs, which are already fully provided for and where net asset value is almost close to zero, can be taken off the balance sheet. But it doesn’t mean that that account will not be followed up and there will be no recovery efforts. So, the first thing was to put the balance sheet in order. We ensured that not everybody should be spending time on NPA management and should focus on other functions as well.

Are you disappointed with the progress in the Vijay Mallya case?
Kumar: The attempts to recover money from Mallya continue. His properties were attached and pledged to the bank by the Enforcement Directorate. The extradition matter is between the government of India and Vijay Mallya. Whatever security the bank had to enforce and realise money have been done. The bank has been able to recover about 25-30 percent (from the Vijay Mallya-Kingfisher account).

Can you list the three most critical challenges in SBI right now?
Kumar: The first, of course, will be COVID-19. The bank needs to be very watchful on this, although the major stress is already addressed. Second is maintaining the competitive edge of the bank in a tight competitive environment and continuing the leadership position. The third is keeping an eye on the earnings profile, and keeping a handle on NPAs. The institution should keep NPAs under strict control. Don’t lose the leadership position.

What is your advice to your successor?
Kumar: Well, he (Dinesh Kumar Khara) has been part of the team. My advice to him will be to adhere to the core values of the bank. If somebody adheres to the core values of the bank, there will be no problem in managing State Bank.

You recently spoke about YONO valuation…
Kumar: The (valuation) debate was in a different context. When I was having a conversation in one of the webinars, the point was about startup valuations. What I said is when I look at the valuation of other startups, YONO’s valuation should be $40 billion. I said it ‘should be’. The comments that followed showed that I’m not off the mark.

(YONO is an integrated digital banking platform offered by State Bank of India to enable users to access a variety of financial and other services such as flights, trains, buses and taxi bookings, online shopping, or medical bill payments.)

Can you give an update about hiving off YONO to a separate entity?
Kumar: It is under serious discussion. First, we need to have an agreement with the technology partner on how to carve it out.

Were you forced to do the Yes Bank rescue?
Kumar: The situation developed in such a way that without SBI, it (the rescue) looked difficult. Without SBI, Yes Bank would not have been saved. The implications could have been serious to the stability of the banking system of the country. Only SBI had the balance-sheet size and capability to handle its revival. And in the process, of course, I’m happy that many private-sector banks participated to make a collective effort.

So you were not forced to do it?
Kumar: It’s not a question of force. It’s a call State Bank had to take. In the given circumstances, it was very difficult for State Bank to say that we don’t want to do it. But we did it in a manner that didn’t harm our shareholders’ interests. We didn’t agree for a merger. SBI provided the leadership and comfort to other investors and depositors. The role which the bank played was a constructive one. The structure at which SBI is holding, we have about 30 per cent in the bank. It will do well. No doubt about it.

But you called it an ‘investment’
Kumar: The price at which we have invested, we are not going to lose money. They are going to gain from this investment. To that extent, it benefits the shareholders of SBI.

Will SBI consider merging Yes Bank with itself in future?
Kumar: Not at all. Merger is not about the balance sheet. Merger is about culture integration, which is impossible between State Bank and Yes Bank.

How satisfied are you with the integration progress of associates and the Bhartiya Mahila Bank with SBI?
Kumar: That has been very smooth. Within six months, the process got over. It has been smooth from an employee and customer perspective.

During your term, there was a report that said you were snubbed publicly by the Union finance minister. Your comments.
Kumar: ‘SBI Chairman’ is a prestigious position in the industry and its importance can be gauged from the fact that the first chairman was a former finance minister. The dignity of that position needs to be maintained.

Your comment on low pay of PSB employees evoked strong criticism from a former SBI chairman.
Kumar: The comment was probably made without understanding the context. My comment was never about the SBI Chairman’s compensation, but about other people.

How bad is the COVID situation?
Kumar: One needs to be watchful but the situation is not as bad for the financial system as some people have made it out. I’m saying this as a banker, and from whatever I see on State Bank’s books. The recovery, I mean the full recovery, will happen only when how soon you are able to find a vaccine. Otherwise, the recovery has been fairly okay across sectors.

What is the long-term impact of moratorium and the one-time recast on the asset quality in the system?
Kumar: The moratorium is over and as far as one-time restructuring is concerned, there are sufficient safeguards as prescribed by the RBI.

What percentage of SBI’s total restructuring could go for one-time restructuring?
Kumar: Our estimate is what many people don’t agree. But, I think not more than Rs 20,000 crore will go for restructuring — retail and corporate put together.

RBI estimates the GNPAs to go to 14.7 per cent next year…
Kumar: That is a worst-case scenario. I don’t think we are heading to that situation. In State Bank of India, our NPA figure will not be higher than what it was during the previous year.

Do you think it’s time to rethink about government ownership in PSU banks and in SBI?
Kumar: The government has an agenda about social banking, which is the very purpose with which State Bank was created, although today we do everything — corporate banking and commercial banking. We are a listed entity and we have to perform. Other than that, I haven’t seen any pressure from the government.

From the perspective of market valuation, the value will go up if government ownership goes below 50 per cent. But I think SBI will be the last if this happens. The government has to look at PSU banks first.

The PJ Nayak committee had recommended privatisation of PSU banks. But this remains an unfinished agenda.
Kumar: It is all about governance, not really about ownership. Not all private sector banks are properly managed. We have seen that in the past. Ultimately, regardless of the ownership, governance structure needs to be strong.

What’s your take on bad bank?
Kumar: In my view, this is the best time to create a bad bank (A bad bank is a bank set up to buy the bad loans and other illiquid holdings of another financial institution).

A bad bank was not created years ago because the net book value of NPAs was very high. Today, the net book value of NPAs is very low—hardly 15 per cent in many cases. The point is if there are people specialising on resolution, and if all NPAs are brought to one place, bank managements can focus on the rest of the business.

Resolution can be faster. Right now, if there is a large corporate NPA, one needs to go to 10-15 banks for resolution. Whether you are making a bad bank or not, the resolution process is very slow. It needs to be faster.

Who will fund it?
Kumar: The Indian Banks’ Association (IBA) had recommended that the government should fund it. The model suggested was that banks, in the first stage, should transfer NPAs at net book value, and, later on, price discovery should happen through a transparent process, say within six months.
Now, PSBs own 60 percent of the banking system. We can’t transfer to any other entity other than a government-owned company. This is the logic. This is not understood properly and everybody started commenting on it.

Are you happy with the way RBI has functioned as a regulator?
Kumar: The RBI has been doing a fantastic job. A regulator is a regulator. As a regulated entity, we have to follow certain discipline and decorum. If you have a view, you can write to the regulator but taking on the regulator isn’t good.

RBI has been pushing for better monetary policy transmission
If you see the governor’s recent speeches, that complaint is no longer there.

Your future goals?Kumar: To keep myself physically and mentally fit.

Will you be looking at other professional assignments?

Kumar: Why not? But whatever I do, that will be befitting the stature of the post I held as SBI chairman. Nobody, including me, should do anything that lowers the stature of that position.