In the April-June quarter, SBI refinanced R8,000 crore in loans, thereby, boosting corporate loan growth.
At present, SBI is charging a spread of just 50-80 bps over its base rate lending to corporates having an external rating of BBB, according to Krishna Kumar, the managing director of National Banking at the bank.
Most other public sector banks, however, charge a minimum spread of 100 basis points over their base rates for BBB-rated corporates. For instance, Union Bank of India charges at least 100 bps above base rate of 10% to such corporates, according to an executive at the bank. Bank of India, too, charges around 100 bps above base rate on an average.
A corporate rated BBB is considered to be at the lower end of the investment grade rating scale and considered to be higher risk credit than AAA or AA rated companies.
A company with BBB rating today could become BB tomorrow, given the economic condition, said the executive from a competing bank suggesting SBI is taking undue risk in refinancing strategy.
In 2012-13, Crisil Ratings downgraded 616 companies and upgraded only 379. The agency had said downgrades will continue to exceed upgrades in the medium term.
However, the country's largest lender also has a clear benefit in the refinancing business on account of base rate which is lowest in the industry due to its wide base of low-cost deposits. SBI's base rate at 9.70%, is 25-50 basis points lower than most other public sector banks whose base rates are a minimum of 10-10.25%. In 2012, the lender's base rate was 50-75 basis points lower than PSU competitors.
Recently a manufacturing company told us that it would shift its loan to SBI because it is giving at 10.25% when my base rate itself is 10.25%, said an executive from a small PSU bank that it lost some of its clients to SBI.
Some fear at a time when economic growth continues to slow, ramping up on corporate loan portfolio by squeezing spreads could prove a risky bet for SBI which is already grappling with rising NPAs.
SBIs asset quality has remained stressed, particularly in SME and mid-corp segments. Further, there are early signs of deterioration in large corporate segment too, said Barclays Bank in a recent report. SBI's non-performing assets at 5.56% of its loans in April-June quarter are among highest in the industry and given the size of the bank, it is a major cause for worry. In the April-June quarter, SBI saw fresh slippages worth R13,766 crore. In addition, the bank has a soaring restructured assets portfolio which now stands at a massive R44,811 crore as on June 30. SBI executives, however, told FE the bank has stringent credit assessment process and refinances only investment grade companies, which means the lowest external rating the bank considers is BBB.
"It is finely priced than our other loans. But it will depend on the external rating and our internal assessment as well, said Arundhati Bhattacharya, the managing director and chief financial officer at SBI.
The bank relies on ratings by external agencies while deciding on lending to a specific corporate but it also has its own internal credit risk assessment process for arriving at the correct spread to be charged above its base rate that would factor in the entire risk.