Rajnish Kumar, Chairman, State Bank of India (SBI) talks about the Bank of America action on four largest banks of India, fresh NPA cycles that will come into existence in near future and ways to deal with it, the concept of bad banks and more during an interview with Swati Khandelwal, Zee Business. Edited Excerpts: 

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Q: Bank of America Securities has downgraded four largest banks of India including the State Bank of India (SBI) as it believes that the emerging cycle of non-performing asset (NPA) is the biggest nightmare of 2020. What is your view on it? How big is the concern on the Indian financial sector amid regular downgrades from UBS, CLSA among others?

A: Every bank has an analysis and own opinion. But our internal assessment does not match with their estimate. We have also analyzed all of our accounts from every sector. That’s why I understand there is a difference between the analysis presented by them and our own estimate particularly about the State Bank of India. Problems in the real sector also have an impact on the financial sector. But it is important to keep the bank's performance of the last three years in mind. 2018 was the most difficult time in relation to NPA as it accumulated to a huge level and the provision coverage ratio was very low. And, the State Bank has cleaned up the corporate book in the last three years. Our net corporate NPA stood at just Rs 19,000 crore at the end of December 2019. Even the agriculture debt also came down last year. Looking at all these factors, it doesn’t seem that the things are not as bad as it is being projected. Our own analysis suggests that we, the State Bank of India, will repeat its 2020 performance in 2021 if everything remains as per our predictions. It would have been better in 2021 but we will have to surrender the better part due to COVID-19 impact. If the situation worsens more than anticipated, we will be in a much better position than what was the situation in 2018. The operating income of the bank is growing well and has increased by more than 50% in the last 3 years. So, there are many factors and the bank’s portfolio is much diversified and there is no concentration in it. Its exposure is more in the portfolio of strong companies. But every analyst has their own analysis and they are entitled to hold on their feelings. 

Q: Fresh NPA cycles that will be visible across sectors in time to come will have an impact on the banks and there is a slow credit demand amid rising NPA situation. How will you deal with it and what instructions are being given from the bank’s side to minimize this kind of impact?

A: The bank’s approach is very clear. The accounts which were standard till March 1 and we have faith on the promoters and their intention and if their loan accounts with the banks were being serviced on time but they faced certain issues due to COVID-19 pandemic, which can be of two types (i) There is a temporary disruption in cash flow for three months after which they can put their business online quickly and (ii) There are accounts that may take six months or more time to come back on their full capacity. Then sector-by-sector and then account-by-account, our approach will be to identify the businesses that have been impacted by COVID-19 but were running smoothly till March 1. Then, the State Bank of India (SBI) will help them in all the ways that it needs. In the process, we are also using RBI’s regulatory dispensation of March 27. And, we will also follow the regulatory guidelines to quickly assess the revised requirement of our good clients with whom we have long-term relationships and support them.  

Q: The banks who are under IBA are talking about bad bank structure and you have also said that it is the right time to have a bad bank. Let us know about the thought process and how it can help? Do you think that this can be considered seriously and is the proposal is lying with the government?

A: No, it hasn’t been discussed with the government yet. Currently, it is at the consultation level and every bank will give their views on this. IBA will consider it and we will approach the government and the RBI on the behalf of NBA if a document and recommendation are framed that can be implemented. However, it is at the early consultation stage and we haven’t reached the stage where it can be presented in front of the government and the RBI. 

Q: Any concrete talk related to its structure?

A: No. How its legal structure will look like is being discussed at present. Essentially, such a work was also done under project Sashakt and focus is being given on an Asset Management company. Ultimately, AMC, ARC and AIF structure is the only structure in this case but its details are being discussed.  

Q: SBI in recent past raised the premium it charges over its external benchmark rate (EBR) by 20 basis points for floating rate home loans. Can you tell us the reason behind it?

A: State Bank of India’s rates are the most competitive as well as a differential in the market at present. Secondly, amid COVID-19 situation, we feel that the bank’s home loan portfolio is at higher risk at the moment. I would say that it is a nominal increase and the premium has been hiked a bit to cover the enhanced risk of the home loan portfolio that may emerge in future. 

Q: There were talks that the SBI has decided to grant a moratorium on repayments to NBFCs. Is it true, if yes, then when it will get notified? Why you took such a long time to make a decision on it?

A: Our executive committee has approved the proposal to provide moratorium to NBFCs on case-on-case basis after analyzing its cash budget. As far as the matter of time is concerned, earlier our approach was to assist the NBFCs by providing additional money to them on the basis of their cash budget if they are in a need of any additional money. Their cash budget will change if a moratorium is granted to them. Now, it depends on the NBFCs and the micro-finance institutions that whether they want to take moratorium from us or additional facility or a combination of both. The main difference between NBFCs and the rest of the businesses is that the NBFC is also intermediate and their collection is affected. We know that their collection stands at around 40-60% as compared to the past but their disbursement has also been impacted. We met just for an internal discussion to figure out the purpose for which the bank should grant money or the moratorium to them. Apart from this, there were discussions and demands for the same. In the view of the situation, the bank decided to grant the facility of the moratorium to them and RBI also didn’t have any objection in it. 

Q: Every sector is expecting that the government should announce a big stimulus package, it will come off not will depend on time. According to you what can be the concrete revival plan from the government’s side? Banking and the financial sector is a backbone to it so, what kind of support is expected from the government?

A: The government is consulting on the issue and we, the IBA, have provided its suggestions to it. Consultation with the industry is on and we will have to wait and see the format in which the package is announced. It has affected every business, may be more or less. Help will be required but I think that the help will start from the bottom of the pyramid. So, the government’s first priority has been announced in the form of a package of Rs 1.70 lakh crore. I feel the next support will be granted to the MSME sector but guessing the form in which it will be provided is not possible for me. As far as the government’s help to the big corporate’ is concerned then the industries association has provided various types of suggestion to it. Following the same, I believe that some kind of stimulus package will be announced by the government but I can’t make any guess about its size. 

Q: MSME is an important segment and the government has its focus on it, as you informed us, and we also expect that some working capital loans will be announced for the MSME sector. Let us know about the kind of support that you have provided to the MSME sector and how it will be extended further? 

A: State Bank of India is the first institution that started the process of helping the MSME sector. It started the provision of providing a 10% emergency credit line to it in a simple way and in a quick time and we are continuing with it. And, if there is someone who needs more than this 10% than we, the bank, is ready to reassess its working capital. And those whose accounts were in a good condition till March 1 then support will be granted to such businesses from our end. If COVID-19 has caused disruption in their business and they are seeking any financial help than the State Bank of India is ready to help them. 

Q: How is the liquidity situation at present as RBI is saying that enough liquidity is available in the system? Also, let us the sectors where an uptick in demand can be seen in the near future?

A: Every sector will take different time in recovering. Sectors related to aviation and tourism will take more time in recovering, while the core industries recovery is likely to be fast after the lockdown is lifted completely. Credit optic will increase as soon as the capacity utilization of the industry goes up. However, their capacity utilization is low at present and that’s why the sanction limits of the corporate and businesses are low. Amid lockdown, now, we will have wait and see further relaxations as well as the exit policy and strategy that the government will announce after May 17. Things will largely depend on it. But, many people have formalized their sanction limits and the bank will provide the money whenever they will need it.