Diwakar Gupta, MD & CFO, State Bank of India (SBI), just chaired a committee on consortium lending that has recommended changes to ensure the system works more efficiently and to the benefit of bankers. In a conversation with Aftab Ahmed, Aparna Iyer and Pranav Nambiar, Gupta says the SBI has not cut exposure to any sector despite growing signs of credit stress. At a time when there is large-scale restructuring of corporate loans, Gupta is hopeful that NPAs will reduce and loan growth will bounce back.
As a banker, do you foresee more business now after the FDI proposals?
It does open up a plethora of opportunities, but the results will be seen only between 18 months and two years down the line; so, right now it’s more a matter of sentiment. Nevertheless, that should push business for us, going forward. And the same is true for NPAs since a better sentiment will allow equity flows to come in and, with that, cash flows for companies should ease. Those who have cash-flow problems currently will be able to bring in their own contribution. Today, a very large part of the problem is cash flows rather than viability.
Is aviation, particularly Kingfisher, still a pain area?
Everybody talks very cynically about Vijay Mallya, but since I have not met him, I don’t not know what to say. All I know that India is tipped to become the second largest aviation market by 2020 with 540 million travellers. Kingfisher has created a brand value. Having said that, they need to get back, though it may just be too late. They have already killed so much value.
Bankers have been paring exposure to some of the troubled sectors. Has the view changed?
We have never said that we will be paring exposure to these sectors, but, obviously, I am not going to add exposure. Today, if somebody comes up and says I am setting up another airline, I will say no. But I am not saying that I will cut my aviation exposure; we haven?t done that in any sector. There has been some contraction in MFI loans, but that is for the whole system and not because we have cut down.
How are the mid-corporates coping with the slowdown?
Mid-corporates have a genuine problem and that’s where the NPAs are coming from. There was this report about how profitability of companies has dropped between 2009 and now ? the Sensex 30 companies have seen profitability shrink from 15% to 11%, but the fall has been far steeper for the CNX 500 companies where it has crashed from 11% to 3%. So, if, on an average, profitability has gone down to 3%, a huge number of companies would have turned loss- making. So, the maximum pain is at the mid-corporate and the large SME level and 70% of our NPAs are coming from this segment.
Would you revise your loan growth target for the fiscal?
It is too early and we have not revised it yet; so, I don’t want to go to town saying I will grow only at 14% or 16%. Sentiment revives as fast as it wanes; so; hopefully you will have a good Diwali season and if something happens on the construction and the real estate side, we could well see 18% loan growth. Because deposits are robust, on liquidity there are no issues. There is definitely a worry that the pickup in investments and production capacity may take longer than we think, but, even today, every rupee and a dime I am getting, I am still positive.
After the base rate cut, what will happen to margins?
It is a very calibrated kind of decision because, obviously, a 25-basis-point CRR cut does not warrant a 25-bps base rate cut. A 1% CRR cut releases about R10,000 crore and gives us R1,000 crore of earnings and that warrants barely a 10-bps cut in the base rate. But we have cut more also because we have cut deposit rates and we hope this will trigger a healthy cycle within the industry of cuts on both sides. This month, our net interest margins should be back to 3.62-3.63% and the base rate cut will set us back by four bps. But we expect that to be made up with larger volumes.
How much more will SBI have to provide if the Rbi says provisioning on restructuring needs to be 5%?
It will cost us about R200 crore a year and totally about R400 crore, but I think the recommendation is fine, although it may hit my bottomline. If if my restructuring book behaves well, then it is fine because the money will ultimately come back. I don’t have a view on it one way or the other.
