State Bank of India (SBI) managing director Rajnish Kumar, set to take over as the bank’s chairman on Saturday, spoke to reporters on Thursday about his plans for the bank and recent regulatory developments.
State Bank of India (SBI) managing director Rajnish Kumar, set to take over as the bank’s chairman on Saturday, spoke to reporters on Thursday about his plans for the bank and recent regulatory developments. Liquidation should be the last option for cases being referred to the insolvency courts, he said. Edited excerpts:
Under your leadership the national banking group piloted the merger of the associate banks. What is the way forward for the merger of branches?
We are now done with the major chunk. We have merged just six or seven short of 1,000 branches with the nearby branches and there may be 200-300 more. But, as I said, the major part has been taken care of.
Will there be further sale of non-core assets?
We did the SBI Life IPO (initial public offer) recently. We have small stakes in entities like NSE (National Stock Exchange) and SIDBI (Small Industries Development Bank of India). In some of these, the bank may choose to dilute some percentage. We are not seeing it as any major activity as of now. Going forward, in the next two-three years, there are companies like our SBI Mutual Fund or SBI Card. So that is a long-term plan, not (an) immediate plan.
With external benchmarks for determining interest rates, the spread charged will be a key differentiator in terms of attracting borrowers. What is your view on spreads?
The pricing of the loan products is being done on the basis of certain factors. In MCLR (marginal cost of funds-based lending rate) itself, Reserve Bank of India had mentioned a formula and banks have adopted that formula. Over and above MCLR, the only component is the risk premium, which gets linked to mostly the risk rating or for a portfolio, like, say, home loan, there also we take stock of the past history of delinquencies for what is the credit cost on that portfolio. That’s how you get 8.35% on a home loan, because the NPA percentage is quite low and for loans up to `75 lakh, the bank has certain advantage in terms of capital requirement that gets passed on to the borrower. But if you look at certain segments, where the delinquencies are very high, then in that case we necessarily charge higher risk premium.
So it’s not arbitrary, but to a certain extent, the arbitrariness comes in only because we are working in a very competitive environment. Sometimes the market conditions are such that the bank is unable to charge the risk premium which it should be charging. It is not the other way round.
You have said that stressed asset resolution will be a key priority. With the insolvency code in place and a lot of cases being referred, we’ve seen that in the first case that has been resolved, banks have had to take a large haircut.
That one single case cannot become the guidance for future, right? That I will treat as an exception. And, as far as NCLT (National Company Law Tribunal) is concerned, as I said, each case is different. The claims on the particular borrower will be different. The enterprise value will be different.
When we go to the NCLT for resolution of the cases, we have to look at the enterprise value, we have to look at the number of buyers in the market, what is the value they are seeking, whether resolution is a better option or liquidation. As far as liquidation is concerned, this is the worst option. That means your recovery will be lowest and that’s why the decision would be based on what will derive the maximum value for the bank, as well as the enterprise value should be properly determined, and the decision should be taken which does not result into any dilution in the value of the enterprise.