Expecting the bad loans situation to improve from the third quarter of this fiscal,  Arundhati Bhattacharya, Chairman of State Bank of India, said the banking system also hopes the Seventh Pay Commission will improve the deposit situation, which is now at a low. In an exclusive interview to The Hindu , Bhattacharya spoke of the NPA situation, the growth prospects and the imminent merger of the SBI and associate banks. Excerpts:

 

There was slowdown in credit growth in the banking sector in the previous financial year, but public sector banks’ loans grew at a much slower pace than that of private sector banks — a point that was raised by the Reserve Bank of India also…

 Credit growth will pick up in the second half, not in the first half. The reason why loans for private sector banks grew, which is also applicable for us, is due to refinancing of completed projects. This is happening by cannibalising of the smaller banks. We are able to offer a rate which is lower than what the smaller banks charge. Loan growth was not because of new investment or new demand. Everyone is focussing on retail these days, even the public sector banks are getting into the act. But their rates sometimes become an obstacle because they have to be very competitive. Unless you offer a competitive rate, it is difficult to get new business.

What kind of business growth do you see in the current financial year?

 We are projecting a credit and deposit growth of 12 -13 per cent each for the current financial year. 

Deposit accretion has slowed down due to softening of interest rates. Is that an area of concern?

 For the first time, deposit growth has fallen below 10 per cent in the banking system in the last two months. I hope the 7{+t}{+h} Pay Commission will reverse the trend. We hope to see lot of deposits coming in.

Focusing on retail will also mean thinner margins. How do you address that?

 When interest rates are coming down, you cannot have high margins. So, if these are the margins that we have to survive on, so be it. Last year, because of the tight liquidity we could not get the treasury income we estimated. But now the central bank has given everybody to understand that they are looking at a neutral liquidity stance. So, hopefully, on the treasury side, we should be able to do better 

Do you expect gross NPAs to rise further, in absolute terms?

 Gross NPAs will go up because when you make a classification, many of the bank guarantees get called, line of credit starts devolving… so the non-fund based exposures turn NPA.

We have given a guidance of ₹40,000-crore slippages for the entire fiscal. So, the absolute numbers will go up.

However, I believe that in the second half of the year, you will see the numbers (gross NPA) starting to reduce. The first two quarters will still have some amount of pain. I am confident that from the third quarter, the numbers will come down, the cycle will turn.

 Provisioning requirements will also go up, as they slip further in asset classification over time. So, that is why resolution becomes important.

The RBI recently released a new set of debt restructuring norms, that is, the Scheme for Sustainable Structuring of Stressed Assets (S4A). Do you think that will help in resolution?

Only a few companies will be eligible for S4A because, for example, the norm says you can only take the current cash flows. Current cash flows are happening in many of the units with very low capacity utilisation.

So, if you take the current cash flows, it really does not work… rather you should take the cash flows where the capacity utilisation is at a higher level. It has to be a realistic assessment.

Second, the norm says banks have to maintain the current rates of interest. The fact is borrowers are paying very high interest rates because the penal rates are in operation. If you continue with those level of interest rates, it does not look a workable situation. So, S4A is not meant for anybody and everybody. It has to be done selectively. We have given the feedback to the regulator.

What is your view on the Strategic Debt Restructuring norm, which was released by the RBI last year?

 Unless there is a buyer standing by, doing an SDR does not make sense. Today, we will not invoke SDR unless we are sure that we will find a buyer.

The Cabinet has approved the merger of SBI with its associates. What are the steps the bank is now taking to complete the merger?

 There are many steps which are being taken simultaneously. First, there are four entities in the merger process which are listed, including SBI. We need to do the valuations of the entities. We have to come up with a scheme of merger, which has to be notified so that the minority shareholders can register their grievances, if any, which we have to address.  We are looking at the area of various products to see which need to merge with what. So there is a team working on the accounting side, on the IT side and teams that are looking at other legal requirements and compliance issues.  There is also a team working on the human resource side. This is an important issue which is at the heart of the entire merger process.

Will some branches be closed down due to the merger?

 We are looking at branch rationalisation, but our intention is not to close down branches. There is no point having two branches side by side.

What is the biggest challenge that you have to address?

 In any merger, the biggest challenge is always integration of human resource, because the people who are coming in have a lot of apprehension. There is always an apprehension that opportunities will go down.

There are apprehensions of displacement. Many of these apprehensions are unfounded.  We also learn from the media that there are some customers who are apprehensive as they feel they will not get the same kind of personalised attention. We need to allay their fears.

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