State Bank of India (SBI) aims to improve the quality of its assets in the coming quarters and has taken a slew of measures to achieve this goal, chairman Pratip Chaudhuri said in the annual shareholders' meet on Monday. "The bank would have to be very careful about the restructured assets, which carry higher risks. We are aware of the need to improve our asset quality and would keep our eyes fixed on the net NPA (non-performing asset) number," Chaudhuri said.
Speaking on the sidelines of the meeting, he said apart from farm sector loans, SBI also saw stress on assets in the mid-corporate portfolio. He said the effect of rising interest rates were hitting retail borrowers more than companies.
The bank's net profit plunged 99 per cent year-on-year in the fourth quarter of the last financial year, since the lender had to keep aside more provisions due to deterioration in asset quality. In the January-March period, SBI's loan loss provisions rose 49.3 per cent compared to the year-ago period, on account of more slippages, especially in restructured loans. The bank's gross bad loan ratio rose to 3.28 per cent as on March 31, from 3.05 per cent a year earlier. Total slippages in the bank's restructured asset portfolio were worth Rs 3,134 crore in 2010-11.
Investors feared additional slippages in the bank's loan portfolio would further erode its profitability in the coming quarters. SBI shares fell 17 per cent since it announced its fourth quarter results on May 17. The bank's shares closed at Rs 2,180.20 on the National Stock Exchange (NSE) on Monday, down 1.5 per cent from their previous close.
Chaudhuri said the bank was keeping a close watch on the quality of its credit and had taken steps to improve the recovery of loans. "Most of the restructured assets are covered by security and these accounts have been with us for several years. The underlying securities in these assets are strong. There is no deterioration in the asset quality," he said. "But as the units have been hit by an economic slowdown, we need to be careful, since this has a multiplier effect. The bank has a specific person at the deputy managing director level to focus on NPA management," he said.
SBI has also set up a call centre to tract loan accounts that slipped into the NPA category. It has appointed rural recovery teams to improve the health of the farm loan portfolio.
On whether the bank would raise interest rates after the Reserve Bank of India's decision to increase the repo rate, Chaudhuri said the increase in the cost of funds had been more than offset by the rise in yield on advances. He said the bank's asset liability committee would meet in the next ten days to decide on a rate increase. "The present liquidity conditions would also be taken into account for a rate revision decision," he said. The bank would send a fresh proposal to the government for capital infusion in the form of a rights issue, he said. "We will have to start the work on it and send a fresh proposal to the government. We are working on different structures like partly paid and plain vanilla. At this point, we are sticking to the estimate of Rs 20,000 crore for the rights issue," he said.
Chaudhuri said SBI planned to introduce multi-city cheque books and provide accident and medical insurance to its savings account customers. The move is aimed at increasing the bank's low-cost deposit base.
On deregulating the savings deposit rate, Chaudhuri said, "We feel RBI may, from time to time, look at the interest rate and either completely deregulate it or fix it at periodic intervals."
