SBI group requires Rs 1 lakh crore to meet Basel-III norms

Chennai & Mumbai, September 7: The State Bank of India and its associates and subsidiaries will require around Rs 1 lakh crore of capital over the next five years to meet Basel III norms (in addition to retained earnings).  Diwakar Gupta, Managing Director and Chief Financial Officer of SBI, told Business Line this was based on a 20 per cent growth rate, and a return on equity of between 18 and 20 per cent. He conceded that the estimate could vary since growth rates during the last year as well as current year are lower.
The RBI estimates that Indian banks would need about Rs 5 lakh crore in the next five years to get ready for Basel-III norms that will be effective from 2018. The norms, developed in the backdrop of the global crisis in 2008, impose higher capital prescriptions on banks to cater to various risks.
Asked about the capital that the bank would receive from the government in the current year, Gupta said, “The number being bandied about in the press is closer to Rs 4,000 crore. We are reasonably comfortable with capital. Rs 4,000 crore will see that we don’t breach anything.”
SBI received Rs 7,900 crore infusion from the government last fiscal. He said, “We don’t need further capital under Basel III all the way up to 2015. Counter-cyclical buffer introduction may require capital beyond 2015. The extra 2.5 per cent will come up in 4 tranches and the fiscal 2015 may require a little capital.”

Capital conservation
Gupta also said that the bank would continue with its capital conservation strategy (routing SME, export credit through guarantee schemes thereby reducing the credit risk on such assets and also lowering the capital requirement on the loans). The measures had contributed to a 62 basis point rise in the tier-1 ratio of capital last fiscal (one basis point is one-hundredth of a percentage point). SBI had a capital adequacy ratio of 13.8 as of June with tier-1 ratio at 9.8 per cent.
He added, “We will try a couple of other levers, but by and large we will improve the integrity around our data and around our ratings better. We clawed back 91 basis points totally last time. Hopefully this year, we will do another 25- 30 basis points based on the same parameters.”

Rating agencies
Asked if the improvement in capital ratio would warrant a ratings upgrade by rating agencies, Gupta said, “It is very hard to say. Our stock is taking a beating. In the short term, markets reflect the mood more than the basics and I think that is the case for rating as well. Asset quality is a problem for all banks and therefore the rating agencies are well within their rights to say that there is enough stress to warrant a ratings revision. But another big item that they said affected the ratings was the inability of State Bank to raise capital at will. Now this has not changed since 1955. Why suddenly that should become an important factor while re-considering a rating? I think it is more a factor of perception than fact. We will, of course, ask the rating agencies to review our performance which is quite strong.”
Gupta said that SBI was delivering the second largest corporate profit in the country and was the largest taxpayer. “That is something the rating agency should also look at,” he added.

No pressure from government to cut rates: Pratip Chaudhuri

Mumbai, September 7: In an interview with ET Now, Pratip Chaudhuri, chairman, SBI, talks about the rationale behind their decision to cut rates as well as credit growth targets and the expected NPA levels in Q2. Edited excerpts:
ET Now: Take us through the rationale behind your decision to cut deposit rate.
Pratip Chaudhuri: Yes. Our deposit growth has been very robust from April 1 to August 31. The deposits have grown by Rs 75,000 crore and the loan growth, including commercial paper, has been only Rs 30,000 crore. Therefore, we thought we will try to restrict and moderate our deposit growth.
ET Now: Are PSU banks cutting rates under pressure from the government even though SBI has been the first to do so?
Pratip Chaudhuri: We don't cut rates because of pressure from the government. PSU banks decide their rates on their own. But while deciding the rate, one has to look at the market and the relative positioning of the bank. We adjust the rate looking at the demand. For example, in our case, we reduced the car and home loan rates thinking that the reduction would allow growth in the loan book for cars and homes.
ET Now: But many banks have revised their credit growth targets in light of low demand. Is there is a similar thought at SBI as well?
Pratip Chaudhuri: These targets are not our own. The targets are largely determined and shaped by the volumes you see. It is very easy to move the credit growth target up, but where are the deposits? Similarly, if you get more deposits and there is not enough traction in the credit market, then you have to calibrate it down. Therefore, it is always a function of demand and supply. And I do not think the individual target-settings by banks are anyway meaningful.
ET Now: What kind of loan growth are you seeing and sectors will drive this demand?
Pratip Chaudhuri: For our bank, the biggest contributor has been the construction sector, particularly the contracting firms and companies which are doing work for state government agencies. Next are the electrical machinery and the power sector which are selling their produce to the distribution companies. These have been the two biggest sectors.
There was some worry on the iron and steel front because there were problems as far as iron ore mining and availability of iron ore is concerned. The iron ore mining situation is becoming slightly better. Therefore, we expect the steel sector's raw material availability to rise and their finances to improve as well.
ET Now: Tell us about your asset quality, especially in terms of the power, iron and steel sectors. Which sectors are likely to be the biggest contributors to your NPA situation?
Pratip Chaudhuri: The levels can be known with some degree of accuracy only by the 20th or 25th of the month following the quarter, but we are working hard to control these levels.
ET Now: What kind of NPA levels are you expecting in Q2?
Pratip Chaudhuri: Restructuring pipeline is not very different from the delinquent pipeline. Therefore, for companies that are under stress but have real value asset and want to borrow against that, we are considering extending the tenure of the loans or making available more loans.
ET Now: What is the extent of restructuring that you are expecting in the second quarter? Tell us what the pipeline is looking like.
Pratip Chaudhuri: Under the SBI Act, the minimum government holding has to be 51%. Therefore, I do not think it is right for me to comment because the government's holding percentage has to be determined by the government. I can only tell you that the government has left no stone unturned in capitalising the public sector banks. Last year, they pumped in about Rs 15,000 to 20,000 crore of equity to keep the pubic sector banks well capitalised.
Therefore, I do not think anybody should doubt the commitment and ability of the government to keep the banks well capitalised. But at the same time it is important that the banks generate sufficiently large internal surpluses.

Proposed guidelines of RBI on Banks' exposure State Bank of India, ICICI Bank to be affected

New Delhi, August 20: The SBI and ICICI Bank are among those that would be affected if RBI implements its proposed guidelines on banks' exposure to their group entities, global credit rating agency Moody's said today. Last week, the Reserve Bank released draft guidelines to limit banks' exposure to their own group non-financial and financial entities.
As per Moody's, the proposed rules would hurt companies that depend on parent banks for capital and brand support, particularly those with large international operations, or those that operate insurance, securities or asset management businesses that need capital and liquidity support to meet their business needs.
"If the RBI adopts them, the new guidelines would be credit positive for India's banks, but credit negative for group companies that rely on parent banks for capital and brand support," Moody's Investors Service said in a report. It said the "affected banks" include ICICI Bank, State Bank of India, Bank of India, Bank of Baroda and Kotak Mahindra Bank.  "The guidelines would lead these banks to re-examine the financial support they provide to group businesses as anything exceeding the stipulated limits would be detrimental to their standalone capital calculations and thus their business growth," Moody's said.
The rules, it said, would benefit India's banks because they would reduce their concentration and contagion risks from group activities. The guidelines, if implemented, would limit to 5 per cent of paid-up capital and reserves a bank's exposure to a single group non-financial entity, while the maximum exposure to regulated financial services companies would be 10 per cent. However, Moody's said that for the time being, these draft guidelines do not help the banks in any way cope with their immediate asset quality challenges owing to the difficult environment.

SBI's sharp downturn NPAs increase, but provisioning does not

The performance of the State Bank of India (SBI), the country’s largest lender, is in a way similar to that of the Indian Railways. Both, because of their size and critical positioning, are significantly linked to the overall health of the economy. It is, therefore, not surprising that in the first quarter of the current year the bank has reported a sharp rise in non-performing assets (NPA), indicating borrowers’ inability to service their loans in the present economic environment. This has overshadowed the large year-on-year rise in the bottom line, which has, in any case, benefited from the earlier low base then caused by catching up in provisioning. The bank’s Chairman, Pratip Chaudhuri, has highlighted the deterioration in the portfolio for mid-corporates and small and medium enterprises, which underlines the adverse conditions at the grassroots level. The agricultural and large account portfolios have also deteriorated, but Mr Chaudhuri has held out the hope that with the monsoon picking up somewhat and a chance of two large loans getting back on track, the outlook may not be all that depressing.

What cannot, however, be explained by the overall deterioration in the economic situation, which has been gradual, is the sharp setback in performance compared to the picture it had projected just three months ago. In the last quarter of 2011-12, gross NPAs had actually fallen by a small amount, compared to the sequential previous quarter. This had been made possible by upgrading of assets, more cash recoveries and low additions to non-performing assets. The hope that the bank would be able to sustain this effort in order to combat the tough year that lay ahead has been belied. Gross NPAs have gone up by a massive nearly Rs 7,500 crore and taken the ratio of gross NPA to total assets up to 4.99 per cent from 4.44 per cent. There has also been a sequential deterioration in performance across the board covering interest income, net interest margin (down by 28 basis points), other income and operating profit. Poorer operating performance, combined with higher provisioning, has led to a fall in return on assets by 12 basis points to touch 1.03 per cent.

If non-performing assets have gone up sharply then so should provisioning. However, quite perplexingly, provisioning on that account has actually gone down marginally. This amounts to making the bottom line look better than it actually is. The bank may have good reason to believe that by the end of the financial year improvement will be made in asset quality, but it is always better to first provide and then write back if you get the chance to. After Mr Chaudhuri took over, he earned appreciation by cleaning up the balance sheet and then posting improved performance. That is the trend that needed to continue.

Slippages worth Rs 3000-4000 crore to be reversed by Q3

Mumbai, August 10: When it comes to earnings, India‘s largest lender State Bank of India has nothing much to brag about. For the quarter ended June 2012, the public sector bank posted a lower-than-expected 15% growth in revenue, but deterioration in asset quality caused the major damage. SBI saw bad loans spiked 4.99% to Rs 7,000 crore in the first quarter of FY13, much higher than street estimates. Net non-performing assets also saw a jump to 2.22% from 1.82% quarter-on-year. This rise spooked investors, who dumped the stock causing it to fall nearly 4.5% to Rs 1,887.

Chairman Pratip Chaudhuri is confident that the bank will be able to reverse this situation in the coming two quarters. “As companies restructure their finances and reschedule their liabilities, we think crore Rs 3,000-4,000 crore out of the Rs 7,000 would revert back to standard category in the second quarter itself or by the third quarter,” he said in an interview to CNBC-TV18. He further adds that the slippages came in towards the end of the quarter, due to which they did not have enough response time.

On the positive side, SBI has reported only Rs 562 crore of restructured assets in the quarter, which takes its restructured book to Rs 37,000 crore. Going by historical data, only about 3% of the restructured books become losses. “So with our restructured book about Rs 37,000 crore, I think in the worst case scenario the possible loss should not be more than about Rs 1,000-1,100 crore,” said Chaudhuri. He goes on to say that restructured accounts should not increase going forward, except for in the power sector.

State Bank of India's asset quality improving: Chairman

Mumbai, July 27 (Reuters) - State Bank of India's asset quality is improving compared to last year, Chairman Pratip Chaudhuri said on the sidelines of a news conference after announcing its $1.25 billion bond issue. He did not give any further details citing a silent period ahead of the earnings. India's biggest lender will post April-June quarterly results on Aug. 8, Chaudhuri added.

The comments came after SBI shares slumped as much as 3.8 percent on Friday as a rise in non-performing assets at Punjab National Bank and Union Bank sparked concerns about asset quality in the government-run banking sector.