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'NPAs Need To Be Tackled Much Faster'

Arundhati Bhattacharya of State Bank of India on NPAs, loans to large corporates, retail penetration and the brand, among other things

Big daddy State Bank of India (SBI) has used the pause phase in the economy to go in for a makeover. ‘The Banker to every Indian’ with an eye on tomorrow, has put in place the building blocks to become an aspirational brand. What’s commendable in the here and now is it grew advances to over Rs 13 lakh crore in a tough year and also kept its dud loans in check. The self-effacing chairperson of the country’s largest bank spoke to BW Businessworld’s Raghu Mohan.

Edited excerpts from the conversation:

How will you sum up life as a banker in fiscal ’15 and the nine months since?
It’s been challenging, but I would say a lot of things are beginning to come together. There are a number of positive indicators. The nine months of this fiscal have definitely been better than 2014-15.

Your loans to large corporate and retail grew, but not to mid-corporate and SMEs. The general feeling is big-ticket corporate and retail loan demand was tepid...
In respect of large corporate, things have moved in two ways. There has been some amount of refinancing of completed deals to which we were not the bankers. There are some projects that have got completed, established cash-flows and sought refinancing in which we have taken a stake (loan exposure). Then a number of stalled projects are now nearing completion to which the last bits of disbursements are taking place.

In the case of mid-corporate and SMEs, the stress continues to persist. When the cycle (economic) goes downwards, the last people to get affected are the large corporates, but they are also the first to recover. It takes time for this recovery to reach mid-corporates and SMEs. But please understand that even among them, we have raised our exposure to the better rated. Now it’s not showing up in the numbers because we have also ‘written down’ a number of borrowers who were showing stress.

The conventional wisdom among bankers seems to be let’s not touch large corporate...
When it comes to lending, it’s the micro-risks that matter — either persons or firms — not the macro. Large corporates are largely firms. If you see the number of upgrades (credit) this half-year that has come from our economic research department, it’s more than what it was in the same period last fiscal. And the number of downgrades are also less.

What explains the dichotomy between corporate and retail credit? As in people are employed by corporates and SMEs, but retail credit profiles are very good…
You see, despite the downturn, job losses have been minimal. Then you have a large number of people who are self-employed. In tier-3 and -4 cities, you have a lot of entrepreneurship like small coaching classes and dispensaries. You will find three or four young lawyers who have set up a law firm, lots of IT-enabled services. At the end of the day, you are looking at a gross domestic product growth in excess of 7 per cent. That’s coming because people are working and are in a position to take loans. Our retail loan penetration is lower than in Malaysia and Indonesia. Our median age is only 26 years. This is a moment in the life of a nation that will come only once. Most in the median age are not married. So there will be demand expansion (for retail credit). That is why I said that in the last nine months, we have seen much better performance and indicators.

So one is not to read too much into the two-decade low secular credit growth?
Yes. Just as we had the Hindu rate of growth, we are also looking at this secular credit growth! But having said that, if you are to look at large-scale investments coming in, the sentiment is not as strong we would like it to be. Large projects take time to be conceived, then come to banks for financial closure. When there is a huge downturn, it takes time to fill up the pipeline. It has to happen faster. We believe that the government has to lead the initiative for investments as it takes time for the private sector to come back. The government is doing a lot of things and we are hopeful that confidence will come back.

How much of the NPA overhang is legacy? Is the resolution mechanism good enough now?
The resolution mechanism is where we have to put our efforts into. For whatever is there (NPAs), is there. We also believe some or much of it (NPAs) can be rescued because there are assets on the ground. You see core or infrastructure assets will be needed when growth picks up. You will need ports, roads, steel and refineries.

When the economy picks up, there will be people who are ready to buyout or acquire strategic stakes in them. Now in the case of those who don’t see a pick-up in capacity utilisation or are not able to find suitors, there we will have to find better ways of resolving NPAs. Those will be hard resolutions either through the Sarfaesi Act, Debt Recovery Tribunals, or the bankruptcy law which is now in Parliament.

As for strategic debt restructuring (SDR), there will be buyouts. Frankly, there are few SDRs that banks are considering without a conversation with investors. We are not doing SDRs for banks to take control. But when there is a serious buyer, we take control through SDR and hand it over to the buyer who will run the unit.

It has also been proposed that commercial courts be set up. They will be specialists, not something to do with commercial, something to do with civil society. But yes, resolution in India takes too long; we need to get this timed down. In Germany and the US, it is nine months, whatever be the amount that is to be received is received by creditors.

There are some bankers who say information is hard to come by on borrowers. Within a consortium, some treat an account as an NPA, others don’t. In one quarter, an asset is fine, in the next, it’s an NPA. Why can’t banks be proactive and provide irrespective of the 90-day NPA norm?
Information is available. There is the CRILC (Central Repository of Information on Large Credits) data on the RBI site. Member banks can access it. And yes, an account can be performing in one quarter and not be so in the next. Now when you say provide irrespective of the 90-day norm, then you have to provide for everybody and anybody. It doesn’t work that way.

SBI has positioned itself as the ‘Banker to every Indian’, but is it an aspirational brand, especially with the youth?
We have created a sub-brand ‘Intouch’, which is basically our digital branch. We will be rolling out 100 of these branches by end-March this year. These are branches for the youth and are aspirational. We are also going to open ‘Incube’ (branches) for startups. They will offer financial services not financing. We will help startups set up their companies, deal with tax issues and remittances. We hope that ‘Intouch’ and ‘Incube’ will attract the youth and take care of their aspirational needs. We are setting up a wealth management business, the first among the state-run banks to do so. It will not be just for high net-worth individuals, but those who aspire to be one.

Technology allows you to have a single-window view on your customers, map them across products and services. What’s SBI strategy out here?
Absolutely. You see cross-sell ratio has become very important to us. When I came in, it was 1.7 or even less at 1.4. Our aspiration is that we should end this March at three products. We have changed the organisational structure and how people come together on formats.

In these competitive times, don’t you think each bank should be allowed to pay according to its ability to do so and breakaway from the bilateral-wage pact with the Indian Banks’ Association?
That should be the road map. But remuneration is something that has to have the government’s consent. We have put up a proposal for ESOPs to the government.

How do you look back at your stint at SBI so far?

It has been challenging. We have taken a lot of initiatives. We have a team of high-performing individuals. Projects have been taken up; many of them are nearing completion. You will see their impact in the years to come.

[email protected]; @tabonyou

(This story was published in BW | Businessworld Issue Dated 08-02-2016)