Over the last few weeks, the country?s largest lender, State Bank of India (SBI), has been witnessing a rise in the number of fresh applications for loans coming in from the corporate sector. What makes this more promising from the bank’s point of view is that these loans are not merely for refinancing existing loans, but for new projects or capacity expansion. In an interview with Pranav Nambiar and Aparna Iyer, SBI MD & Group executive (national banking) A Krishna Kumar discusses why the second half of the current financial year will see stronger loan growth than the first half and why SBI?s asset quality will read better at the end of the financial year. Excerpt
Have the recent reform measures given a boost to corporate loan demands?
The stress across the corporate segment will continue as long as economy does not pick up. However, over last couple of weeks, there are indications of an emerging silver lining. There are many companies coming forward with applications for fresh advances or for increasing the level of advances. Previously, they were not coming. The borrowers are now thinking there are some hopes for revival. This is likely to be across the board and not specific to any particular industry. These loans are either for fresh projects or for working capital to expand scale of operations or upgradation of machinery.
What about the retail loan book?
We are also seeing a pickup in the growth on retail loan side. For instance, in August-September period, when we first announced the rate cuts for auto loans, the number of applications doubled within a few days. While we were financing 400-500 applications of auto loans per day then, this went upto as high as 2,000-2,500 towards the end of September.
On the home loan side, the average ticket size has increased in the last 18 months from R11-12 lakh to around R14-15 lakh. This is partly due to a sharp rise in property prices. The asset quality in the home loans portfolio is one of the best. The gross non-performing asset (NPA) levels are less than 2%. However the rate of growth in housing loans has slowed down a bit. As against 18% yoy growth during the same period of the previous financial year it has now slowed down to about 12% yoy.
Would you then revise your loan growth targets for FY 13?
At the beginning of the year, we expected a loan growth of 20-25%, but this will not happen. However, the growth in the second half of the year will be better due to the festive season and pickup in demand for corporate loans. In the retail segment, we may touch 18-20% and in the corporate segment, it will be around 15-16%. So, overall I think we will grow about 15-18%.
What is outlook for asset quality?
The improvement in loan growth should have a positive effect on asset quality. If your denominator improves with good loans and your numerator remains the same, the percentage of NPAs will come down. However, it might be too optimistic to expect the absolute levels of NPAs to come down sharply. We expect our gross NPA levels, which were at 4.98% in the April-June quarter, to fall below these levels by the end of the year.
Is there a scope for further rate cuts?
It depends on the decision of RBI on October 30 during the policy meet. If it announces a significant rate cut, definitely there is scope for rate cut. For instance, a 25 bps cut in repo rate its not very significant, but a 50 bps cut on cash reserve ratio (CRR) is much more significant and could call for further lending rate cuts.
How does your capital position look?
As of now, keeping in mind our targets for credit growth, expected internal accruals, and the BASEL norms, we are well within the capital adequacy requirements for FY 13. At best in the year 2015-16, we may need additional capital to meet regulatory requirements. The bank’s capital adequacy ratio at the end of June stood at 13.17%.
