The previous financial year was the first full year for SBI as a consolidated entity after the merger of five associate banks and Bharatiya Mahila Bank. What is your assessment of the benefits and challenges?
It has been very smooth, be it human resources, customer accounts or information technology system integration. There have not been any areas of major concern. But it will take some time to bring everything on a par with SBI, due to differences in corporate governance standards and practices at the associate banks. The last few months were spent in bringing everything on a par. When you are going through a transition of this scale, it takes time even for the performance standards to be aligned. The balance sheet impact of the merger was in the first quarter of 2017-18. The rationalisation of staff and branches has also been smooth. The way the merger of the five banks was handled, without any major issues, speaks well about the management bandwidth at SBI.
What are its implications for asset quality and, perhaps, provisions for bad loans?
We knew there would be a balance sheet impact. The bank, more or less, cleaned up in 2017-18 and the previous year. So, from April 1, I am almost starting on a clean slate.
What is your view on the insolvency resolution of companies, particularly the first 12 cases referred to the National Company Law Tribunal? What kind of write-offs/write-backs do you expect?
We are expecting that (resolution) to happen this month. As for provisions, these are expected to be neutral. Rather, there may be some write-backs. We are waiting for the Essar Steel bid to be in place. Once that happens, we will have a correct estimate because for the rest of the cases, bids have been made and the position is clear. So, Essar Steel is crucial. The entries (about proceeds) will be reflected in the quarter ending June.
The status of cases will be known this month — whether it is going for liquidation, or the recovery and resolution plan — unless some a court intervenes or the process is stalled. Otherwise, the status for most cases will be known by the end of April or at best, May 10, which is when the 270-day period from the date of referral expires. So, many crucial decisions will come in the next 10 days, including the case of Bhushan Steel.
In the case of steel assets, due to a better industry outlook, we have seen aggressive bids and new players. Can the same be said about the power and EPC sectors?
The engineering, procurement and construction (EPC) sector’s situation is not good. Any resolution in cases from this sector is much more difficult because of incomplete projects, claims and counter-claims.
It is easier with steel as there are plants, machinery and other assets. So, the maximum recovery will happen in the steel sector. In the EPC sector, the recovery percentage will be lower. As for power, no case has gone to the NCLT so far. But now, in accordance with Reserve Bank of India (RBI) guidelines, we have to take a decision on power assets under stress by August 31.
The RBI has also relaxed norms for mark-to-market (MTM) losses on the bond portfolio of banks. How will it reflect in the March quarter? Will it also open some room to participate in bond auctions?
Whatever provision I was to make for the March quarter has been reduced to one-fourth and the balance will be made in the next three quarters. So, it is fairly okay. Ultimately, I have to take care of it next year. We will do our math and see what is to be done. SBI is a big player in the bond market and we cannot keep away from it.
We are consciously trying to reduce the duration to minimise the interest rate risk. The RBI announcements, while giving details of borrowing programmes such as short-duration bonds and floating rate instruments, have addressed most concerns that banks had expressed. This will help in managing duration risks in a much better manner.
How has credit growth been in 2017-18 and what is the outlook for 2018-19?
The month of March has been very good. The retail segment is doing well, whereas the large corporate portfolio is fluctuating. We have made a lot of improvement in credit processes and in 2018-19, there will not be any effect of the merger either. So, 2018-19 looks much better than the last financial year, which was a very challenging one. The small and medium enterprises (SME) segment has started showing growth, both in sanctions and disbursements.
Overall credit growth in 2017-18 was 6 per cent and we expect this to improve to the double digits (10 per cent) in 2018-19. The credit-to-deposit ratio (CD ratio) will be much better. Our target is to take it to 71-72 per cent from the lows of 66-67 per cent. There are two ways to manage it: Either we ramp up credit or cut the flow of deposits. There are many financing opportunities in the pipeline — projects such as the Rajasthan refinery, three fertiliser plants being put up by public sector enterprises (NTPC, Indian Oil and Coal India), and also in the renewable energy and roads space.