'We can't delay NPA resolution any longer.'
'If you talk to any international investor, they have much more faith in our country than many of our countrymen.'
The issue of non-performing assets (NPAs) has been haunting the banking sector for long, despite various efforts for resolution. Arundhati Bhattacharya, chairman of the country’s largest lender, State Bank of India, says a call has to be taken this year. In a conversation with Anup Roy, Abhijit Lele and Vishal Chhabria, she talks about her bank’s strategies, its aim to be among the top 30 banks globally, and stressed assets resolution. Excerpts:
The merger with associate banks has catapulted SBI to 45th place globally. What’s next?
It is our aspiration to be in the top 30 globally in three years. The bank will expand by exploiting opportunities in a growing economy. I am not looking only at top line (revenue) growth. I am looking at improving of efficiency, productivity and ratios - the top line is incidental.
I do not think we should look at acquiring another bank for growth. We will leverage on the strength accruing from the merger and also extensively use the digital platform to grow the book in an organic way.
A year before, there was hope that a resolution on stressed assets would make progress. Nothing much happened. What could one expect in the new year?
I am still hopeful. I see no reason why it should not. This year will have to be one when we have to take a call on this. I don’t think we can continue to delay it for much longer.
With delay in resolution, wouldn’t the pressure to make provisions (for such loans) only increase?
You are already aware of the kind of NPAs we have. So, to that extent, the ageing provision will happen. It is better we also do the resolution side by side.
Many of the assets we are talking about are large. If they are on a steady footing, they act as a fulcrum for many units to come up around these. If their existence itself is not certain, the confidence of the surrounding eco-system gets shaken.
Despite various schemes, resolution hasn’t happened. What would be the ideal solution for an NPA resolution process?
The fact is the resolution process is still taking a lot of time. There is a lot of hope riding on the National Company Law Tribunal (NCLT) but it will need a little time to find its feet.
Many supporting elements also need to come up in order to complete the eco-system and make NCLT effective. You will need a number of utilities, like reporting utilities.
The resolution professionals have got to be certified and registered. The banking system needs to have a system of assessing the various models. The problem is that many of the models that come up are not comparable and so viewpoints might differ not only outside but even within the bankers.
So, we must have a way of taking a consensus decision, and bankers should be confident to take the decision. That should not be questioned subsequently because it has been taken purely on a commercial basis. If that comfort can be given, many of these (resolution decisions) would definitely go forward.
Most of the private sector expansion happened through bank funding. The promoters have very less of skin in the game. Is that preventing you from taking hard decisions on NPA resolution?
That should not prevent us. When we are writing down the debt, we would write down the equity as well. We don’t have a very strong resolution mechanism yet.
So, if you try to do something without the promoter altogether, then you need to have the ability for somebody strong to come up and take the asset, and run it. That’s not our primary capability.
We need capable entities to come and run the company (in question). If that is not there, then you necessarily come and work out something with the promoter, to ensure the money is properly utilised.
There is no one solution that fits all. We also must remember that since those assets were put on the ground, there has been a lot of inflation. Therefore, the replacement cost of those assets is also quite high.
With digital banking, costs are coming down but a customer or trader still has to pay a good amount in transaction cost. How does the sector tackle that?
Frankly speaking, it is more a mindset issue. If you go to a supermarket, everyone has paid the Merchant Discount Rate (MDR) forever. The general people go there. Do they object to pay the MDR there? They don’t.
I think it is also a mindset of small traders. Yes, the charges are there. But, if your volumes grow, then it automatically gets taken care. We should leave these (charges) to market forces to determine. Why are we trying to be so prescriptive about it?
SBI recently raised bonds at Libor plus 95 basis points. This is comparable to the highest rated corporates from highest rated countries. But, we are rated BBB- in the international market. Do you think our ratings should improve significantly?
It’s not only the SBI brand but also the country’s. If you talk to any international investor, they have much more faith in our country than many of our countrymen.
There is no country, developed or developing, that has not gone through these types of cycles. The government has been telling the (global) rating agencies to improve their rating. But, if they (agencies) stick to their position, there’s pretty little we can do.
Even at the height of the taper tantrum in 2013, when the rupee got clubbed into the ‘fragile five’ (category), we (the country) raised $30 billion without stirring from our seats in 20 days, through FCNR loans; the diaspora put their money.
At that point also, I had told the rating agencies that you may rate us at whatever but for our NRIs (non-resident Indians) and the rest of the world, we are rated AAA. That’s why the money came in, as there was full confidence. Till now, India has never defaulted on any international obligation.