At SBI, the mid-corporate division, which handles loans in the range of Rs5 crore to Rs500 crore, is the source of 43% of the bank’s NPAs. Speaking to Shayan Ghosh, SBI deputy managing director (mid-corporate)

NK Chari said the bank plans to be cautious in lending to the iron and steel sector from hereon. Excerpts:

How were the loans sanctions in FY15?

Some of the term loans that we sanctioned are not getting immediately disbursed; so, they are not reflected in the outstanding as on March 31. Sanction of term loans, however, has not been as per expectations. On the working capital side too, the growth has been subduded. Unless new projects come into being, growth will not happen.

Which sectors have shown signs of stress?

We expected the infrastructure sector to show higher growth in the light of a new government. But the pace of new proposals has not been as swift as expected. Going ahead, we will be cautious in lending to infrastructure, no doubt. Iron & steel has given us a lot of stress in the last 2-3 years, at least in the mid-corporate space.

After the end of forbearance, how do you plan to go ahead with debt recast?

We will go ahead with restructuring if the account has the potential to improve in the future. Restructuring, per se, is based on viability. We don’t mind holding a 15% provision if the company can come out of its problems and, within a year of its moratorium, turns from an NPA into a standard account. The account must satisfy the standards set in the restructuring agreement for a year after the end of its moratorium. So, if we had given them a moratorium of two years, at the end of the third year, you can classify the account as a standard asset, provided it satisfies all criteria.

What are your views on 5/25?

The loan-repayment period should be set on the basis of the project life. If the project life is 20-25 years and we fix the repayment at eight or 10 years, it hurts the project unless it has so much cash to repay in that period, which rarely happens. By and large, we are actually squeezing the asset’s life by giving it a shorter repayment period. Under 5/25, we are not constrained by an under-10-year repayment period. The RBI recently removed the requirement that 25% of lenders for refinancing be new under the 5/25 scheme. This was because it had become very difficult in the current market to find new lenders, as most banks were already financing large projects. In the steel industry, too, I think we could have the 5/25 scheme.

Our study has shown that, invariably, most cases go through the rectification route. It’s only when this route doesn’t yield results that we go for restructuring or recovery. So, the first step during most JLFs is rectification and that has happened in many of the SMA cases. However, if it repeatedly goes into SMA because there is an inherent weakness, the JLF could reconsider a corrective action plan (CAP). The CAP is flexible and can be changed at a later stage also.

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