Terming the government’s ₹2.11-lakh-crore recapitalisation package for public sector banks as positive for both the banking system and the economy, State Bank of India Chairman Rajnish Kumar said it takes away the fear of how the haircut, arising from resolution of stressed assets, will be funded.

“I think haircut should never be linked to the recapitalisation plan. Yes, definitely it takes the fear out on how the losses (involved in the process of resolution of stressed assets) are going to be funded.

“But ultimately the haircut would depend on the outlook for the sector,” Kumar told reporters on the sidelines of a FICCI-IBA summit.

The SBI chief explained that if banks had undertaken any resolution in the steel sector a year ago, the haircut would have been much larger. But now that the sector is looking up, there is hope that the haircut would be lower, he added.

A haircut is a one-off adjustment whereby lenders agree to settle for a lesser amount when a company struggles to repay a loan.

Credit rating agency Crisil, in a report released in July, said banks may have to take a haircut of 60 per cent, worth ₹2.4 lakh crore, to settle 50 large stressed assets with debt of ₹4 lakh crore.

To a question on the status of the stressed accounts, which banks have been proceeded against under the Insolvency & Bankruptcy Code (IBC) for resolution, Kumar said, “So far things (IBC cases) are moving as per plan. That is the only thing that I can say. And certain accounts have seen good expression of interest.

“But the real story we will know when they come to the bidding stage — what is the quality of the resolution plan, how much funds the bidders are going to commit upfront and what is the amount they are asking from the banks by way of some sort of write-down. So, there are many, many considerations.”

The SBI chief observed that ultimately resolution of stressed assets is in everyone’s interest as enterprises and jobs are protected.

“And the solution has to be an ideal one where the interests of all the stakeholders gets protected... protecting the lenders’ interest would be our top priority. And wherever we are the leader in the consortium, with the co-operation of all the creditors, we will try to ensure that.”

Risk clearance

To a question on how his bank’s approach to lending has changed in the backdrop of asset quality pressures, B Sriram, Managing Director, SBI, said: “With risk and business going together, risk clearance is important…We are making sure that all aspects of a proposal are taken care of while appraising a project.

“We have got more data now available in terms of appraising a project. This was not there five-seven years back. This will improve the quality of credit, going forward.”

When the government had announced the recapitalisation package for PSBs on October 24, Kumar had said it will generate balance in overall demand and supply by bringing more investments in sectors like infrastructure.

“These funds will also help in efficiently managing risk and credit capital-related requirements of the banks. The steps will also encourage private participation, thus boosting growth, going forward.

“The thrust to infrastructure will generate direct and indirect positive cascading effects for a lot of related sectors and will create a feel-good factor for all stakeholders,” said Kumar.

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