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1. 21/2/2014
Moneycontrol.com
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SBI going 'account by account' to tame NPA problem
In an interview with CNBC-TV18’s Sonia Shenoy and Reema Tendulkar, State Bank of India Chairman Arundhati Bhattacharya
discussed the non-performing assets issue that the lender has faced in the past few quarters.
The top banker said SBI was facing bad-loans stress not so much from retail, agriculture or large corporates and that it was
mainly the large SMEs and midsize corporates that were an issue.
“Large companies have diversified operations and plenty of cash flows from different areas. They also have access to other
sources of capital,” she said. “Our concern is mainly in the mid corporate and the larger SMEs because these are people who
do not have deep pockets, who are in one line of activity and if that is stressed, they cannot bring in cash flows from
somewhere else. And these people do not have access to that many sources of finance.”
SBI was going “account-by-account” to find solutions for such customers, Bhattacharya said, “because not only do they need
lengthening of their debts so as to enable them to pay but they also need capital; they need equity.”
Below is the interview of Arundhati Bhattacharya, CMD, State Bank of India with Sonia Shenoy & Reema Tendulkar on
CNBC-TV18.
Sonia: Your thoughts on the non-performing assets (NPA) issue because State Bank of India (SBI) has been sitting with
huge NPA problems -- in the quarter gone by, gross NPAs rose to close to 5.73 percent. As a banker, what is your view on
this and how much of a relief or when can we expect on the non-performing loans (NPL) front?
A: If you have seen our media interactions, I had already stated that we have a handle on NPAs in various segments -- that is, I
do not have any concern on the rural segment, retail segment, the small and medium enterprises (SME) segment or even in
the large corporate account segment.
Our issues are mainly with the mid corporate and with the larger of the SMEs, which are like mid-corporate. The reason why I
am seeing this is that in retail and in agriculture -- that is in small loans -- what [RBI Deputy Governor] KC Chakrabarty said is
absolutely correct. It is very effort-elastic; if you have a proper plan, if you make the proper efforts, you will be able to bring down
NPAs in those segments and our quarterly results this time very clearly show that that we have been able to bring down NPAs
in these segments. Even though there have been slippages, most of them have been recovered and we will continue to
recover them. So, I do not have any major concerns in those areas.
With respect to large corporates too, these have diversified areas of operations. As a result, if their operations are weak in one
area, they can automatically get cash flows from other areas of operations and support this area in the weaker segment.
Large corporates also have various other ways of raising cash; they can securitise future cash flows, they can sell part of their
shareholding, they can also bring in various sources of finance. So, they have access to other sources of finance, which the
smaller people do not have.
That is the reason why our concern is mainly in the mid corporate and the larger SMEs because these are people who do not
have deep pockets, who are in one line of activity and if that is stressed, they cannot bring in cash flows from somewhere else.
And these people do not have access to that many sources of finance. Therefore these are accounts where we need to go
account by account and find solutions for them because not only do they need lengthening of their debts so as to enable them
to pay but they also need capital; they need equity.
Our equity markets at this point of time are not supportive enough; the corporate bond market doesn’t work so we have to find
innovative solutions for these guys which we are trying to do. There are several conversations going on, as you can see
almost every week there is some kind of acquisition that we see in the media.
So I believe these conversations will result in solutions and going forward you will be able to see many of these highly
leveraged corporates, they will be able to bring down their leverage. Many of the people who are under stress, they will find
ways of turning around.
Sonia: Will the mid corporate and the SME segment where collaterals tend to be weak, will it continue to contribute more
than 75 percent of SBI’s NPL?
A: I think going forward we will see some slowdown there because we have identified each of the weaker accounts and we are
reworking all of them. Those that needed slipping, they have slipped maybe a little more is still there in the pipeline but most
of them are now identified and we are working very actively account by account to see we do not see much more stress in this
area.
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2. 21/2/2014
Moneycontrol.com
Having said that, we also need to await the gross domestic product (GDP) and the Index of Industrial Production (IIP)
turnaround, if what has been said during the Vote on Account (VoA) regarding the GDP come in at a higher levels – and I had
also spoken earlier and said that we need about two quarters of a GDP turnaround.
I would also like to see an IIP turnaround because merely a GDP that is fuelled by services and agriculture may not be enough
to release the stress in the manufacturing sector. So, we need to see an IIP turnaround as well, but I believe that these are
round the corner that this will happen and as it happens, you will begin to see the stress coming off banking books.
Reema: IDBI Bank as well as few other shareholders are in the process of identifying a buyer for CARE Ratings. SBI as
well has about 6.3 percent equity in CARE. Would you all as well be looking at exiting your investment in CARE to the
potential buyer?
A: We are considering it. It is a part of the strategy for this quarter. Let us see whether if we get a good enough price, we may
definitely consider doing this.
Having said that I also wanted to make a comment and that is when the media is covering the banking sector there is a lot of
emphasis given only on the NPA angle. There are a lot of good things also going for the banking sector and I do not believe
that the media is covering this well.
We have robust operating income and that indicates something because all business is cyclical and going forward see the
cycle turning but I do not find that there is a balanced reflection of this in the media coverage that goes on in respect of the
banking sector.
Of course, this is an unsolicited comment and I hope you will take it accordingly but I do believe that the media needs to also
reflect the stronger element of Indian banking sector.
Sonia: We will take that feedback but NPLs have blown out of proportion to such an extent for many of the smaller banks
that you start to worry about whether the bigger banks will also succumb to this pressure one day or the other. But
coming to the earlier question on your holding that you have in CARE, you said that you would be considering at some
point in time but how much would you be looking to sell?I understand you hold about 6.3 percent shares, so any ballpark
estimate of how much you would look to offload?
A: I haven’t taken call on that. We will take a call on that going forward but at this point I cannot give a number.
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