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Business News/ Industry / Banking/  SBI plans to unlock value of subsidiaries by selling shares: Arundhati Bhattacharya
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SBI plans to unlock value of subsidiaries by selling shares: Arundhati Bhattacharya

SBI to decide on move after discussing proposals with joint venture partners, says SBI chairperson

Bhattacharya says SBI’s book is very spread among the retail, large corporate, international banking, agriculture, mid-corporate and SMEs segments.Premium
Bhattacharya says SBI’s book is very spread among the retail, large corporate, international banking, agriculture, mid-corporate and SMEs segments.

Mumbai: State Bank of India (SBI) will decide on unlocking the value of its holdings in its subsidiaries, including its insurance and credit card units, after discussing the proposals with its joint venture partners, Arundhati Bhattacharya, chairperson, SBI, said in an interview. The nation’s largest bank plans to unlock value by selling shares in the joint venture units to the public, she said, adding that the bank will also look to raise equity capital, now that the government has allowed its stake in state-owned banks to drop to 52%.

The Reserve Bank of India’s (RBI) recent announcement allowing more flexible rescheduling for existing infrastructure loans will benefit borrowers and lenders alike, said Bhattacharya. Potential misuse of the provision will be checked by the need for such rescheduling to go through the internal evaluation committee of a bank, she said.

Bhattacharya said that no major improvement has been seen in stress levels in the banking system, with small and medium enterprises (SMEs) still struggling because of the weak economy. Edited excerpts:

The government has talked about paring its stake in state-run banks to 52%. You do not need capital immediately, but would you look at it next year?

I do not want to comment on the timing. We will come when the timing is suitable and we have everything in place. Of course, we will need capital, though we do not need it immediately.

Would you also want to unwind some of your capital from non-core assets to release capital, like other banks are doing?

In many of our other ventures, we have joint venture partners who also need to be on board. They have to tell us what they would like to do because they have the right to first refusal. Only after that we would take a call on what to do with them. We have a lot of subsidiaries which are of very good value. Insurance is there, we have a card subsidiary that is doing exceedingly well, mutual funds subsidiary is there, investment banking arm. We can always unlock that value by listing them, but then I have to take other people along and see what they want to do. Listing would be preferred to unlock the value than exiting them.

Now that flexible rescheduling of loans has been allowed for existing infrastructure loans, what will this mean for the sector?

If you look at the international markets, for projects that are capital-intensive, the minute the construction phase is completed and production is supposed to start, normally all these loans get refinanced. Normally, they are refinanced with bonds which would have a certain coupon and the repayments would be termed out according to the cash flows of the project. In India, that was not allowed mainly because there were no players and the bond market was not deep enough. Many of these projects are special-purpose vehicles and they do not have a track record. So, even if they get a rating, the maximum rating would be a BBB. If you look at the kind of people who are currently invested in the Indian bond markets—the pension funds, insurance companies—most of them follow the government pattern of investments, which restricts corporate bond investments at the AA level. Obviously, these infrastructure company bonds would not fit in that, and even if they were taken, it was at a very high cost, which does not make any sense since the banks would be able to finance it at cheaper rates. If the banks were trying to refinance it and were changing the conditions of repayment, a restructuring tag was being added to it which does not make any sense. If a DCCO (date of commencement of commercial operations) has been achieved and there is cash flow, you can refinance that project, which is what RBI has now allowed. RBI had earlier allowed the same thing, but they were asking us to bring in new people. New people could be people who would subscribe to bonds or any others who could take up the debt. But really speaking, we do not have that depth in the Indian markets and I think RBI had realized that. The hope is that five years down the line when we refinance again, by that time there will be sufficient number of players looking at this kind of investment.

Hypothetically, what happens if there is a case that might be in the unviable category? Now the banks have the ability to reschedule payments even though they know the account is likely to go bad. Isn’t there a risk that this provision will be misused?

At the end of the day, if you read the RBI circular, it clearly states that the case has to go through an internal evaluation committee to establish viability. So, if there is a project that is absolutely not viable, there is no reason for you to think that it would be done in the same manner as a viable project. The evaluation is done by an independent committee built of experts and does not sit within the bank. If they feel that the project is viable, there is no reason for us to feel that some unviable projects will go through this process. This tendency of ours to put in all kinds of checks and balances to stop abuse also results in the entire segment getting stressed because there will be a lot of others who will benefit from the system and not abuse it. So, let us not take for granted that this is going to be abused. A number of checks and balances have been put in by the Reserve Bank. The banks, in their own interest, also need to ensure that there is no abuse of this.

What is the assessment of stress in the system right now? You had earlier said that the improvement would only be gradual.

That is how it is even now. I have not seen any great improvement. The stress in the mid-corporate and the SME sector is still very much there because you have not seen any pick-up in demand. Only when there is some pick-up in demand and the GDP (gross domestic product) starts inching up will we see some relief in stress. To that extent, those who do not have deep pockets or do not have too many non-core assets to sell are still showing a lot of stress.

Are banks being more proactive in terms of seeking asset sales?

We are being much more proactive in figuring out when the stress is beginning and what can be done to reduce that stress. That could mean asking people to bring in more equity, asking them to bring in more security, doing whatever is required in respect of individual accounts. But asset sales is something that has really slowed down, especially in respect of the asset reconstruction companies (ARCs). In case of Sarfaesi (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) of course, the level of attention and coordination has all gone up, but in respect of ARC sales, after the revised rules, they have come down. One reason is that ARCs themselves may need more capitalization because they might need more cash upfront. The second, of course, is that ARCs are making much more conservative valuations and the banks have to get used to such valuations. Both of us need to come to some kind of a meeting point before you see an increase in these sales.

Given RBI’s focus on wilful defaulters recently, are banks being able to use that provision more effectively?

The process is still the same.

But what about someone like a Kingfisher Airlines Ltd? Except one bank, nobody has gone ahead and tagged it a wilful defaulter. The process seems to be taking too long.

You can’t help it. That is the process. The delay is that the case goes to court and there are challenges in the courts of law. If someone feels that injustice is done to them, they will go to court and we have to go defend our decision. The courts also have appeals and higher courts. So, you have to work through the whole lot. There is no shortcut in this. I do not see any way to change this situation. It has to come from the judicial systems.

Have you taken a final decision on whether you will provide the $1 billion credit line to the Adani Group?

I don’t see why I should be discussing standard accounts. These things take time.

RBI’s joint lender forum (JLF) experiment seems to be showing a lot of positive results in dealing with stressed loans.

Absolutely. But in JLFs, the only thing is that you need to have cooperation from everybody. What happens is that when you decide something in the JLFs and banks go back to their board, they are not able to convince their boards that this is the right way forward. Then the whole thing falls. It’s not an infighting among banks. It’s about the board being convinced that this is the right way and them taking a view based on their risk appetite. Things have their own pace, and if we work with that pace and anticipate the issues correctly, we can have good results.

The market share of SBI in the overall loans in the banking system has grown because of large corporate loans, especially infrastructure. Why this focus on large loans?

Whatever growth you have seen over the last quarter has been more because of completion of projects and working capital for the enhanced capacities that they have set up. It is not as though we are taking up any new projects. The other thing about SBI’s book is that we are very spread among retail, large corporate, international banking, agriculture, mid-corporate and SMEs. We are very well diversified across asset classes. Even when you look at the industries that we are in, even that is well diversified. Of course, size contributes to all of this, and I have the ability to be in all of them. In the mid-corporate and the SME loans, we have degrown a little mainly on account of the stress. The demand there has also been low.

You offer the lowest rates in the industry because of your strong low-cost deposit base. How much of the business in the market has SBI been able to take on its book because of this?

We have certain numbers and ratings internally as to how much we can give to certain borrowers and we adhere to that. It depends on what my appetite is. The rest, of course, is market-driven. If I want I can take 100%, but I wouldn’t do that.

What are the trends on the retail credit and deposit side of the story?

The retail credit side is not growing now since there is much more competition in the market. We are improving our products and doing what is necessary to hold our own, but having said that, we have not seen any improvement in demand. On the deposit side, we feel that the rest of the pack has to join us in deposit rate cuts; otherwise, there won’t be any cuts for now. There will be some pressure on the deposit rates when people start cutting their base rates. Maybe first quarter of next calendar year, this might come in.

When you say competition, is it largely from private sector players, or are your public sector peers also gearing up?

Competition is from everybody. See, the public sector banks are also doing business. They may not be able to compete with me when it comes to pricing, but they are getting into specialized niche businesses, they are going into areas that they are well established and are also delivering much better.

Will we see lending rates come down by, say, the first quarter of next year?

Let’s hope so. We’ll see.

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Published: 22 Dec 2014, 12:04 AM IST
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