We will withdraw the request for capital if we get interest on CRR or even if CRR is substituted with SLR (statutory liquidity ratio), Chaudhuri told FE, pointing out that SBI would make around R3,500 crore on a CRR of about R50,000 crore at the overnight call rate. He added the bank would also be better off with a 30% SLR, higher than the currently mandated 24%, since the investments were liquid and would fetch good returns.
Chaudhuri confirmed that SBI should be getting around R3,000-4,000 crore of capital from the government by December end. In addition to this, we will generate profits and so by March 2012, our Tier-I capital should be above 9%, the SBI chairman said. Once this happens, Chaudhuri believes, there would be no justification not to get an upgrade on our rating from Moodys. In early October, Moodys had downgraded SBIs rating a notch to D+ from C-, on account of the lenders low Tier-I capital ratio and deteriorating asset quality. SBI has been hoping to do a R20,000-crore rights issue for about a year now but the governments inability to contribute to the issue has held it up.
Chaudhuri feels that SBIs capital would not have been depleted so much so suddenly had it started providing proportionately for pension in the last four years. That is what has shocked investors. There is an elephant in the room, how could the bank miss it year after year he said. Chaudhuri said non-performing assets (NPAs) or bad debt at SBI had more or less peaked since the bank had been relatively quick to detect and declare them. In March, 2011 our net NPA ratio was 1.63% and most of the others were below 1%. But in six months we are at 2.04%, there are four banks with higher than ours.
At a systemic level, Chaudhuri felt, NPAs may have peaked except for some specific sectors like aviation.
But for every troubled account there is another account that is getting resolved. And there are assets that can be sold, he said.
On cash-strapped airline Kingfisher, which owes banks more than R7,500 crore, Chaudhuri said it was a going concern and a turnaround was possible since in India, wage costs were low. The SBI chairman observed that banks had resorted to using the Sarfaesi Act when needed. Meanwhile, Chaudhuri saw no reason to increase interest rates on savings deposits immediately since the bank had not see any flight from such accounts. In any case, we have just launched a seven- to 180-day deposit priced at 7%. If customers withdraw after seven days, there is no penalty, he said. These liabilities were being used to fund assets of 180 days and the bank was earning a decent spread. Chaudhuri said SBI was also working to change the asset-liability mix, which was somewhat mismatched in that there were more long-term deposits and short-term assets. We are borrowing long and lending short, we have an inverse portfolio, he said.
Chaudhuri feels that some changes in the method of allocating capital could help banks boost its resources. For instance, if a company has taken a R1,000-crore loan but has R400 crore of deposits, why cant we say this is a net R600 crore he said, adding that such a change would of course necessarily have to be approved by the banking regulator. Chaudhuri felt it was important to ease liquidity and pointed out that loan growth was tapering off because new projects were not taking off. If you make money more easily available, it will automatically become cheaper and there is demand for money at a price, though I would not say that it would mirror levels that we saw in 2009 and 2010.
He feels credit would grow at around 16-18% this year and perhaps slightly more if one took into account dollar loans.