 "SBI may stop performance guarantee to road projects: Pratip Chaudhuri")
Four days ahead of RBI’s monetary policy review, SBI Chairman Pratip Chaudhuri says a cut of one percentage point in CRR will allow the bank to lower lending rates 20 bps. He tells Manojit Saha why a repo rate cut is meaningless and why SBI plans to stop giving performance guarantees to traders and contractors for road projects. Edited excerpts:
SBI’s 21 per cent loan growth last financial year was higher than the industry average. What will be your growth strategy in the next six months?
Growth in the first half is always slow, particularly from the corporate side. So the emphasis will be on retail, mainly on home loans. Our home loan processing capabilities have improved vastly and the increased number of tie-ups with builders have helped. In the next six months, the focus will also be on increasing the physical strength. We tried to open 1,200 additional branches but opened only about 750. We did massive recruitment in November-December and added 20,000 people. In the next six months, we plan to open 600-700 branches. We expect 25-30 per cent growth in home loans. This is a de-risked model, and our loan-to-value ratio is 70 per cent, so it does not consume a lot of capital.
What’s the strategy for large firms?
SBI expected healthy recovery in Q4? Was that achieved?
Our March-end NPA should be lower than that in December. There has been a good cash recovery, including that from written-off accounts. That income adds to the bottom line. Last year, recovery from written-off accounts had risen to Rs 1,000 crore, compared with Rs 700 crore the previous year.
The one business we might withdraw from is giving a performance guarantee to traders and contractors undertaking projects for state governments. NHAI is not getting paid on time. There are disruptions in these projects. The underlying asset structure is also relatively weak. The risk of default on such guarantees has become more pronounced. Road projects need a repayment cycle to start from a certain date. If the toll collection does not happen on schedule, RBI calls those restructured assets. This increases the provisioning requirement.
Deposit growth has been sluggish over the past couple of years. What will be the strategy to beef up deposit mobilisation?
One thing is sure - we will not go for expensive bulk deposits. We will keep focusing on retail deposits. It would also depend on RBI (the Reserve Bank); if it cuts the cash reserve ratio (CRR), deposit pricing would head lower.
Today, bank deposits are at a disadvantageous position as tax-free bonds, liquid mutual fund schemes, etc, get superior treatment. I have been requesting RBI to reduce the minimum fixed deposit tenure to three days from the present seven days. If someone thinks a seven-day deposit is more stable than three days, that is not the case. Why should bank deposits get the worst possible treatment? Due to all these, bank deposits are losing out to other schemes; as a result, the pool of savings is getting reduced. In addition, with this kind of inflation, it is also time to cut CRR by one per cent. That can take care of so many liquidity issues without hurting anybody.
Why do you think a repo rate cut is not sufficient for a lending rate cut?
A repo rate cut is meaningless; for example, a one per cent cut in CRR will release Rs 12,000 crore for us, and allow me to cut the lending rate by 20 bps, while a similar cut in repo rate cut will affect the lending rate by two to three bps. A cut in CRR will send out a signal of more benign interest rates. That's what the economy needs very badly.
Your cost-income ratio is on the higher side. How do you plan to address that?
Our biggest challenge will be the cost-to-income ratio, which is at 48 per cent. We have to improve the ratio by increasing the volumes, since it will be difficult to shrink the cost. That is because you cut down on services if you shrink cost and you may economise on risk and compliance.
What kind of loan recast pipeline do you expect?
Since a lot of clearance happened last quarter, we don't see a huge pipeline. It could be about Rs 3,000 crore. Our restructured book is much lower than other banks, because we never had exposure to state electricity boards.
Banks had a tough time with their exposure to Kingfisher Airlines. What about your exposure to other airlines?
So far as Kingfisher is concerned, we are in the recovery mode, not in revival mode. We have exposure to Jet Airways and Air India - both are doing fine. Now that Jet has brought in significant equity, there is a possibility that it might pay back some high-cost debt.
What kind of net interest margin do you see in 2012-13 and what is the expectation for this financial year?
Margins are expected to be healthy. We had given a guidance of 3.7-3.75 per cent. We still hold on to that. This financial year, too, we will give a guidance of 3.7 per cent. But it needs to be seen how the margins from international operations pan out. If we get long-term assets from our foreign offices, the margins will be good. But short-term interest in overseas market is very low. Therefore, short-term assets are not very remunerative. Overall, we still have Rs 40,000-50,000 crore of extra liquidity. Once that gets absorbed, we will be very comfortable in terms of margins.
Is there any concern on the asset quality of retail credit?
We have not seen any adverse impact on asset quality in the home loan portfolio. Non-performing assets in this category is about 1.3 per cent. The moment we give a Sarfaesi notice, an individual does everything possible to protect his home.
What kind of capital requirement will the bank?
We expect to close the previous financial year with 10 per cent capital adequacy ratio. The government holding is 63 per cent. If there is a huge demand, only we will need additional capital. There are a number of options. We can go for a rights issue, we can go for a follow-on offer.
What is the plan regarding merging one of the associate banks?
We will look into the issue in the second quarter. Capital raising and a subsidiary merger should be seen in context. Subsidiary merger costs Rs 1,200-2,000 crore, depending on the size of the bank, because the salaries and the pension provisions for employees have to be brought up to the level of SBI.
SBI’s 21 per cent loan growth last financial year was higher than the industry average. What will be your growth strategy in the next six months?
Growth in the first half is always slow, particularly from the corporate side. So the emphasis will be on retail, mainly on home loans. Our home loan processing capabilities have improved vastly and the increased number of tie-ups with builders have helped. In the next six months, the focus will also be on increasing the physical strength. We tried to open 1,200 additional branches but opened only about 750. We did massive recruitment in November-December and added 20,000 people. In the next six months, we plan to open 600-700 branches. We expect 25-30 per cent growth in home loans. This is a de-risked model, and our loan-to-value ratio is 70 per cent, so it does not consume a lot of capital.
What’s the strategy for large firms?
Also Read
Our large corporate book grew 32 per cent last year to Rs 1.65 lakh crore. The non-performing assets (NPAs) in this sector were close to one per cent. Our loans are mostly secured. When firms have unleveraged fixed assets, we have encouraged them to come for loan.
SBI expected healthy recovery in Q4? Was that achieved?
Our March-end NPA should be lower than that in December. There has been a good cash recovery, including that from written-off accounts. That income adds to the bottom line. Last year, recovery from written-off accounts had risen to Rs 1,000 crore, compared with Rs 700 crore the previous year.
The one business we might withdraw from is giving a performance guarantee to traders and contractors undertaking projects for state governments. NHAI is not getting paid on time. There are disruptions in these projects. The underlying asset structure is also relatively weak. The risk of default on such guarantees has become more pronounced. Road projects need a repayment cycle to start from a certain date. If the toll collection does not happen on schedule, RBI calls those restructured assets. This increases the provisioning requirement.
Deposit growth has been sluggish over the past couple of years. What will be the strategy to beef up deposit mobilisation?
One thing is sure - we will not go for expensive bulk deposits. We will keep focusing on retail deposits. It would also depend on RBI (the Reserve Bank); if it cuts the cash reserve ratio (CRR), deposit pricing would head lower.
Today, bank deposits are at a disadvantageous position as tax-free bonds, liquid mutual fund schemes, etc, get superior treatment. I have been requesting RBI to reduce the minimum fixed deposit tenure to three days from the present seven days. If someone thinks a seven-day deposit is more stable than three days, that is not the case. Why should bank deposits get the worst possible treatment? Due to all these, bank deposits are losing out to other schemes; as a result, the pool of savings is getting reduced. In addition, with this kind of inflation, it is also time to cut CRR by one per cent. That can take care of so many liquidity issues without hurting anybody.
Why do you think a repo rate cut is not sufficient for a lending rate cut?
A repo rate cut is meaningless; for example, a one per cent cut in CRR will release Rs 12,000 crore for us, and allow me to cut the lending rate by 20 bps, while a similar cut in repo rate cut will affect the lending rate by two to three bps. A cut in CRR will send out a signal of more benign interest rates. That's what the economy needs very badly.
Your cost-income ratio is on the higher side. How do you plan to address that?
Our biggest challenge will be the cost-to-income ratio, which is at 48 per cent. We have to improve the ratio by increasing the volumes, since it will be difficult to shrink the cost. That is because you cut down on services if you shrink cost and you may economise on risk and compliance.
What kind of loan recast pipeline do you expect?
Since a lot of clearance happened last quarter, we don't see a huge pipeline. It could be about Rs 3,000 crore. Our restructured book is much lower than other banks, because we never had exposure to state electricity boards.
Banks had a tough time with their exposure to Kingfisher Airlines. What about your exposure to other airlines?
So far as Kingfisher is concerned, we are in the recovery mode, not in revival mode. We have exposure to Jet Airways and Air India - both are doing fine. Now that Jet has brought in significant equity, there is a possibility that it might pay back some high-cost debt.
What kind of net interest margin do you see in 2012-13 and what is the expectation for this financial year?
Margins are expected to be healthy. We had given a guidance of 3.7-3.75 per cent. We still hold on to that. This financial year, too, we will give a guidance of 3.7 per cent. But it needs to be seen how the margins from international operations pan out. If we get long-term assets from our foreign offices, the margins will be good. But short-term interest in overseas market is very low. Therefore, short-term assets are not very remunerative. Overall, we still have Rs 40,000-50,000 crore of extra liquidity. Once that gets absorbed, we will be very comfortable in terms of margins.
Is there any concern on the asset quality of retail credit?
We have not seen any adverse impact on asset quality in the home loan portfolio. Non-performing assets in this category is about 1.3 per cent. The moment we give a Sarfaesi notice, an individual does everything possible to protect his home.
What kind of capital requirement will the bank?
We expect to close the previous financial year with 10 per cent capital adequacy ratio. The government holding is 63 per cent. If there is a huge demand, only we will need additional capital. There are a number of options. We can go for a rights issue, we can go for a follow-on offer.
What is the plan regarding merging one of the associate banks?
We will look into the issue in the second quarter. Capital raising and a subsidiary merger should be seen in context. Subsidiary merger costs Rs 1,200-2,000 crore, depending on the size of the bank, because the salaries and the pension provisions for employees have to be brought up to the level of SBI.