RBI may announce 25bps cut in policy rates: Rajnish Kumar, Chairman, SBI

Gross slippage is slightly high in the first quarter, but two-three reason increased its level this time, says Rajnish Kumar, Chairman, State Bank of India (SBI). During a candid chat with Brajesh Kumar, Zee Business, Kumar said analysis of SBI’s internal chief economist suggests that there will be a rate cut of 25 basis points (bps) in the monetary policy review and this is what is expecting. Edited Excerpts:

Q: The bank has reported a profit in Q1FY20, but there is an increase in fresh slippages. What can be the reason for this slippage?
A: Banks operating profit before provisioning is good and has increased by almost 32% but recovery of around Rs1,800-1,900 crore last year shows it as 10.67%. Gross Slippage is slightly higher in the first quarter, but this time it is slightly more due to 2–3 reasons, on which we do not have any control. It is an account that has been performing in every way but one bank’s failure to complete its documentation had made the complete banking system to pay for it.  The Reserve Bank of India has classified that account as an NPA account. Apart from this, there is a slippage of around Rs2,000 crore in agriculture in a state. In the case of the SME segment, account restructuring helped the bank to receive a benefit of around Rs1,500 crore last year and that is why the comparable figures seem to be high this time.

Q: There are talks that the economy is undergoing a slowdown. Can you spell the sectors that are under pressure and those who are doing good at this moment?
A: Auto sector was doing good in the past, but it is on a declining trend - on the sales front - at present. However, the Union Budget has been presented and I feel there will be a pickup in certain sectors like affordable housing because the government has an emphasis towards it and has an allocation in the budget and it also provides tax incentives among others. If I have a look at the project pipeline at our bank than I can see investment opportunities in the gas and oil sector because we have good order pipeline like city gas projects among others. Similarly, good investments will be made in the road sector and NHAI will also come up with a demand for the fund. So, as soon as, there is an improvement NHAI funding position for road construction then that money will also flow in the system. Similarly, there is an improvement in the renewable energy segment. So, the bank’s internal data suggest that there is a scope of demand from these three sectors.

Q: Will the bank come up with further risk tightening exercise for the sectors, from retail to corporate, that is facing problem at present when they come up for new loans?
A: It is not about risk tightening measures or scrutinizing those accounts but the model of the bank particularly in case of retail is reviewed periodically and is changed time-to-time. It is a normal process. When it comes to the industry then the industry exposure limits of the bank are also reviewed periodically after which our risk management department issues guidance for it with a suggestion about the sector where our approach should be conscious and where it can be liberal. So, there is a portfolio level review, as well as credit rating models for individual lending, are a normal process, which changes periodically in every quarter.

Q: Housing Finance account has been in news for quite some time. Is there any problem related to mutual funds in the account?
A: As far as housing finance sector is concerned then mutual fund doesn’t have clarity on signing the inter-creditor agreement (ICA) but it doesn’t mean that it can’t participate in the resolution process.

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Q: What are your expectations for a rate cut by RBI’s credit policy that will be announced tomorrow?
A: Our internal chief economist analysis suggests that there will be a rate cut of 25 basis points (bps) and this is what we are expecting from it.