The State Bank of India (SBI) saw a decline in fresh non performing assets (NPAs) in the last quarter of 2011-12, however, NPA worries for the country?s largest lender may not be over. In an interview, bank?s managing director and CFO Diwakar Gupta told FE?s Pranav Nambiar that asset quality remains the top most concern for the bank since the economic conditions continue to remain worrisome.
What is your biggest concern as of now?
For us, asset quality is the major concern and this is largely due to external factors. So when the economy is slowing down, you either have a set of companies whose top lines are impacted or those who have limited avenues to sell and cannot pass on rising input costs so their profitability is in question. If you look at our NPAs today, 65% of it comes from the corporate world. It does not seem like these would get better in the short-term because the concerns in the economy continue.
Which segments are under the most stress?
The small and medium enterprises (SMEs) and the mid-corporate segment are the hardest hit. The concerns in the global economy are worse, so what is export-led or has one leg outside India is worse off. The rupee depreciation has not helped because it makes all kinds of imports of inputs that much costlier. The top 200 companies of the country are fine today and sitting on cash. But there is no capex and no appetite for new investments.
What about your loan restructuring book?
We have a R37,000-crore restructured book, of which 16% or R6,000 crore has slipped into NPA. Our NPA plus restructured loans book stands at 8.5% of advances, which is in line with the industry. The problem with restructuring is that you have to know between the good and the bad. It?s easy for somebody to be tempted to push off the inevitable under the garb of restructuring but we don?t do it. If you look at our NPA numbers, we added about R5,800-5,900 crore in 2011, but the net addition was R6,278 crore in just Q2 of 2012 and R6,152 crore in Q3. So we have not flinched from adding more NPAs in a quarter than in a whole year. Unfortunately, we feel this quarter is going the same way as far as NPAs are concerned and it is not as good as Q4 when we saw a fall in NPA additions.
Given the business environment, is it time to take another look at the collaterals for loans?
At the large corporate level collateral will never practically be an adequate security. Collateral is typically to keep the skin in the game for the promoter, otherwise the viability of the business or the brand value is good enough. In the last one year, we have done some big deals for NTPC, NHPC, GAIL and Damodar Valley Corporation, which gives us lower margins but risk-adjusted returns are good. So we have been focusing on such companies over the last one year and this is the reason why our credit guidance is lower.
How do you see the demand for loans and deposits this fiscal?
Our guidance this year is 15% growth in advances, but it is actually 14-15% if you ask me right now going by our GDP growth of around 6.5-7%. Even our deposits will grow in the same range as loans, as inflation worries persist. Fortunately, we do not have a liquidity issue. But we do not have a surplus either and will not bring deposit rates down.
We have brought down the rates on fixed deposits up to 240 days to test whether deposit gathering loses steam because of this or is there an opportunity to bring down rates further.
