Hints at Rs 5,000-crore bond issue to meet asset-liability mismatch.
State Bank of India (SBI), the country’s largest lender, is scaling down its loan growth estimate for the current financial year by at least 700 basis points to 18 per cent in the wake of lower demand for loans.
At the beginning of the financial year, the bank had expected to expand its loan book by over 25 per cent. However, due to a decline in demand for loans, the growth rate till December-end dropped to around 16 per cent.
SBI Chairman O P Bhatt told reporters at a press conference that during the year ending March, the growth rate would be around 18 per cent.
Despite the slowdown in loan growth, SBI is growing faster than the industry. According to the latest RBI data, overall credit growth for the 12 months ended December 18 was 11.25 per cent.
Bhatt said companies were still slow to avail already sanctioned credit. With projects on hold in the wake of the slowdown, the gap between sanctions and disbursals was close to Rs 50,000 crore, he said.
“Credit growth is tentative. We do not know if the demand is due to the stimulus or due to the Sixth Pay Commission. It is early to say if the demand is going to pick up,” he said.
On bad debt, he said the ratio of non-performing assets (NPAs) to total assets could worsen. “When growth has slowed, the NPA growth will be faster. Even after the economy improves, as it has in recent months, there can be a lag effect. So, the ratio will get distorted,” he added.
While Bhatt refused to share details of how SBI would cope with the new loan-loss coverage norms, he said the bank was working to meet the stipulated 70 per cent level. SBI had a coverage ratio, that is, provision for bad debt, of less than 50 per cent.
Asked about the impact of RBI’s decision to allow banks to include write-offs while calculating the ratio, Bhatt said, “In SBI’s case, we were not accounting that earlier. This will significantly increase our coverage ratio.” Bhatt said the numbers were being analysed.
The bank has ruled out equity issues at the moment, saying it has a comfortable capital adequacy ratio of 14 per cent. Bhatt also spoke about the bank’s plan to tap retail investors through a bond issue. “Retail bond is a new instrument that we want to bring to the market. Maybe we will bring it this year. We will first test the market. The issue size will not be significant,” he said.
The bank’s Chief Financial Officer S Ranjan indicated the issue size could be Rs 5,000, but the details were yet to be worked out.
The tenure of the bonds is expected to be in the range of 10 years. The issue is expected to help SBI deal with the asset-liability mismatch as nearly three quarters of the deposits are now for up to one-year tenure.
Bhatt said the bank was trying to avoid build-up of excess deposits and had retired high-cost bulk deposits worth Rs 60,000 crore during the current financial year. In the 12 months up to December, the deposit growth was 24 per cent.
He said with bond yields rising, the bank’s treasury gains were likely to wear off in the quarter-ended December 2009.
| CRR increase may be only symbolic: Bhatt
SBI Chairman O P Bhatt expects the Reserve Bank of India (RBI) to at best opt for a “symbolic increase” in the cash reserve ratio, the proportion on deposits that banks set aside. |
While Bhatt does not expect the central bank to increase rates, the maximum increase, he says, can be around 25 basis points. He said even if RBI increased rates in the credit policy later this month, banks were unlikely to increase their rates for the next six months given the abundant liquidity in the system.
Today, banks parked Rs 87,000 crore at RBI’s reverse repo window, used to suck out excess liquidity.
Bhatt ruled any further interest rate cut by the bank. “Our rates are still the lowest in the industry. Where is the scope?” ICICI Bank and Axis Bank recently cut auto loan rates.
