SBI chief wants NPA rules tweaked

Kolkata, August 23: State Bank of India (SBI) chairman has called for a change in non-performing assets’ (NPAs) norms. “There is a need to change the norms relating to NPAs. We should not see a ghost in everything,” said Pratip Chaudhuri.
“For instance, a company has taken a two-year loan to install a machinery. If it fails to repay in two years, just because the repayment has been stretched beyond its original schedule, we should not consider it as an NPA. Nowhere in the world such a yardstick is applied. We need to see if the machinery equipment is sound and capable of generating good output.” The bank chief made these comments to reporters on the sidelines of a banking seminar organised by the Federation of Indian Chambers of Commerce and Industry.
The country’s largest commercial bank saw a surge in bad loans in the first three months of this financial year. The bank added close to Rs 7,500 crore of bad loans on a gross basis during the quarter, prompting investors to sell its shares. Its gross NPA ratio was at 4.99 per cent, while net NPA ratio was at 2.22 per cent at the end of June 2012.
Chaudhuri also said concerns over SBI’s credit quality was “largely overplayed” and the bank will see an improvement in the health of its assets from the July-September quarter. “Our quarterly profit was more than most public sector enterprises’ but our stock got a huge battering because of our NPA. We have done an analysis of the situation. NPAs are largely in the mid-corporate and SME sectors. But with a little consideration, a little understanding and stretching the repayment period, most of these accounts can be upgraded,” Chaudhuri said.
The chairman of the banking behemoth said there would soon be an improvement in the NPA numbers. “We accept the reality, but still, I think, NPA concerns are largely overplayed. In the next two to three quarters, our NPA management will be much better. Current trends do not indicate any increase in our NPAs. In fact, there could be a contraction in our NPAs in this quarter,” he added.
The bank has asked some of its borrowers to sell non-core assets to improve cash flow. If a company is short of capital, SBI is ensuring that the firm takes steps to strengthen its capital base. “If the company is asset-rich but cash-poor, we are positioning more loans to them,” said Chaudhuri. SBI has also appointed 20 senior executives from various public sector enterprises to review the technical aspects of industrial projects before sanctioning fresh loans against them.

NPAs and bad loans have returned to haunt banks

Mumbai, August 11: India‘s biggest bank, SBI, announced quarterly results earlier this week and the share price tanked. While the bank announced a big jump in net profit, its non-performing assets also rose sharply, confirming that weak growth and slowdown in key sectors such as power and steel were continuing to hit banks.

The fortunes of banks are now more closely entwined with that of big business than before. Loans to top corporate groups account for a significant chunk of all debt. Weak growth, both in India and globally, means the bad loan problem, never far from the agenda, has returned to haunt India‘s banks. And predictably once again, the brunt will be borne by the public sector banks.

SBI‘s non-performing loans, which are a bellwether for the entire sector, were Rs 20,324 crore or 2.22% of total loans (after provisions) for the latest quarter. That might not seem much, but that number was 1.6% a year ago. Many analysts expect worse to come over the next few quarters as corporate India, hit hard by slowing domestic and global growth, feels the pinch.

Sector-specific problems such as the difficulties faced by power plants in gaining access to fuel will also play a significant role since a big chunk of non-performing assets are expected to come from infrastructure. The fortunes of India‘s banks are now more tightly entwined with that of a few big corporate groups which now make up a significant chunk of total loans.

Not all these loans have turned bad, but if slow growth and infrastructure problems remain, then expect a large chunk of these loans to weigh significantly on banks’ books.

ET presents data on the exposure of Indian banks to the biggest corporate groups, based on a report by investment bank Credit Suisse.

They now account for 13% of total loans, up from just 6% five years ago. Indian banks are now reliant for their financial health on a small group of top borrowers….

According to Credit Suisse, “all banks appear to have high exposure to the same select few groups”. Also, most of the investments by these groups are in the same set of sectors – especially power and metals.

These 10 groups account for 70% of private sector power capacity likely to come up by 2016-17.

State Bank of India: Net Profit Increased to Rs 3,752 crore

Mumbai, August 10: State Bank of India reported a 137 per cent jump in net profit in the April-June quarter despite continued challenge on the bad loans front. In the reporting quarter, India’s biggest bank clocked a net profit of Rs 3,752 crore compared with Rs 1583 crore in the year ago period.

Tight leash on operating expenses (up by 7.5 per cent at Rs 6,441 crore) and write-back in investment depreciation (Rs 521 crore, due to favourable interest rate movement) boosted the bank’s profitability. According to Pratip Chaudhuri, Chairman, SBI, “Our earnings have stabilised and this has become a new normal for SBI. This is in spite of the fact that provisioning has been a little higher than normally what we do. But we did not have to skimp on the provisioning.”

He pointed out that the challenge for the bank is on the bad loans front. During the reporting quarter, the gross and net non-performing loans increased by about Rs 7,500 crore and Rs 4500 crore, respectively. “In terms of NPA by sector, we have been able to contain the increase in NPAs in the large corporate book. But what has proved to be our nemesis is the increase in NPAs in the mid-corporates, particularly in the SME segment,” the SBI chief said.

Though the net interest margin (the ratio of net interest income to earning assets) was a tad lower at 3.57 per cent (3.62 per cent in the year-ago period), the bank has maintained its guidance of 3.75 per cent for FY13. Due to stress in the mid-corporate and small and medium enterprise segments, SBI will focus on segments such as home and car loans and large corporate loans to boost credit growth.

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.

SME loans: SBI to close one-time settlement scheme

Mumbai, August 7: State Bank of India is closing its one-time settlement (OTS) scheme for bad loans of small, micro and medium enterprises due to disappointing response. A senior official of the country’s largest lender said the response to OTS has been less than desired. The repayment capacity is under severe strain, making it tough to close chronic accounts.

SBI’s total gross non-performing assets were about Rs 39,676 crore at the end of March 2012. Out of which, SMEs’ share was Rs 11,929 crore (30.1 per cent). The total SME portfolio was Rs 1,39,175 crore at the end of March 2012.

Under the scheme, the persons concerned would have to pay upfront five per cent of the loan taken for settlement of the dues within a year. It was part of the effort to recover and settle loan accounts. The scheme provided discounts of 15 per cent to borrowers who make full payment within a month and 10 per cent to those paying back in three months from the date of approval of the OTS.

Diwakar Gupta, managing director and chief financial officer, SBI, said small and micro enterprises face a challenge is growing the top line in the current economic downturn. Also, their input costs are growing.

In June, the country’s largest public sector lender has cut lending rates across all borrower categories to ease pressure on repayment.

SBI passed on the benefit of reduction in cash reserve ratio. There is an overall reduction in interest rates in the range of 50 basis points to 350 basis points across all categories of borrowers.

It had introduced separate rate structure for SME borrowers covered under the credit guarantee scheme. This is applicable for limits up to Rs one crore to encourage SME borrowers to obtain guarantee cover and ensure enhanced credit flow to this segment.