#Lack of equity biggest problem for Indian Inc, says SBI MD Rajnish Kumar

Rajnish Kumar, managing director, National Banking Group, State Bank of India (SBI), recently took charge of the lender's retail, small and medium enterprises and agricultural loans. While retail loans are the fastest growing, SME loans constitute about 30.6% of the total bad loans of SBI, and agriculture accounts for 18%. In an interview with Manju AB, Kumar explains how it feels like to be in charge of the fastest growing portfolio of the bank and also the most stressed sectors.

State Bank of India

Rajnish Kumar, managing director, National Banking Group, State Bank of India (SBI), recently took charge of the lender s retail, small and medium enterprises and agricultural loans. While retail loans are the fastest growing, SME loans constitute about 30.6% of the total bad loans of SBI, and agriculture accounts for 18%. In an interview with Manju AB, Kumar explains how it feels like to be in charge of the fastest growing portfolio of the bank and also the most stressed sectors.

Do you see any green shoots of recovery in the economy? How long will it take for growth to come back?

It will take time but there is some movement on the non-renewable energy, road, power transmission sectors. There is some activity in these sectors and demand for bank credit also. Manufacturing sector is yet to pick up. The GDP growth is coming from the services sector which does not require too much of bank credit anyway. Sometimes loans are sanctioned but disbursal takes time, which is also problem because money gets sanctioned but is not utilised. The growth will pick up with some more policy initiatives from the government and the foreign direct investments that are likely to come into the country.

How are the companies faring now? Why are they not investing?

Lack of equity is the biggest problem for companies. The balance-sheets are over-leveraged. In many cases, the promoters are willing to sell off their non-core assets but there are no takers as the valuations are a problem. And no one wants to go for a distress sale yet. The buyer will want to extract his pound of flesh by quoting low price and the promoter will want to hold on. Sales of non-core assets will take place, just that it will take longer than anticipated earlier.

In the second quarter, the corporate book grew substantially, in fact higher than the retail book due to refinance opportunities. So will the thrust of the bank revert to lending to large corporate and mid-sized companies?

We will have a well-diversified portfolio without any concentration risks. But retail will continue to be a thrust area during the year with special emphasis on home loans. We are stepping up our delivery mechanism for home loans. For example, we have reduced our turnaround time for home loans from 20 days to 10 days. The average ticket size of these loans is Rs 26 lakh and the geographies that are growing are the Mumbai and Delhi-NCR regions.

In the retail portfolio, personal loans have reported the highest growth at around 24.35% to Rs 70,244 crore at the end of the second quarter. Is SBI bullish about its unsecured portfolio? Is it helping you ward off the pressures on the bank s net interest margin?

Yes, the personal loans are growing at a robust pace. But these are not really unsecured credit but express credit for salaried employees whose salary accounts are with SBI. So these are not personal loans in the true sense as we have the salaries that are going through us. These loans certainly give us good returns, all our portfolios are growing there is no question of just depending on one item for returns. There is income coming from all quarters.

The pace of growth in home loans has come down from 17% two years back to now 15% to Rs 170,899 crore. Any special schemes or products planned to push the product more aggressively?

We are playing up the market with our competitive interest rates. Our base rate is 9.30% and the home loan for women borrowers is 9.50% and for general customers is 9.55%. And whenever there are opportunities we will bring down the rates to keep them as low as possible. The growth rates may have come down from the time we had the teaser home loan rates in 2010, but home loans is still an aggressively growing portfolio for SBI. With network of our branches, we are able to reach the farthest pockets. Even if there is a de-growth in a certain pocket, the other areas make up.

The auto loans are also growing at the rate of 18.06%. Ratings agency Moody s said in a report last week that car sales are slowing. Are you witnessing any pressure in India?

In India, we are still to feel any pressure on the auto loan book. We are growing at a healthy rate with strong dealer tie-ups that give the best rates to the customers. The loan is generally given for five to seven years and delinquencies are low.

You are also in charge of the agriculture loan book in the bank where delinquencies are high.

In agriculture sector, the repayments are vulnerable to the vagaries of the climate. Agriculture gold loan is doing well. We have improved upon our tractor loan product where earlier the repayments coincided with the harvest seasons but now we have made it EMI (equated monthly installments) based, so the product is faring better. Even in the SME segment we are structuring a number of products for the small entrepreneurs. We are also looking at online tie-ups to build a marketplace for entrepreneurs.

From April to date there has been not a single reference to the corporate debt restructuring cell. Do banks now believe that CDR does not work anymore, or is it that the regulatory reprieve is withdrawn and banks no longer see it as an attractive option to hide bad loans?

Yes, it is no longer attractive to go for corporate debt restructuring. We have more effective mechanism like the joint lenders forum (JLF), strategic debt restructuring (SDR) and the refinance scheme, popularly called 5/25 scheme. Here you can also finance for seven years. So when effective mechanisms are available banks would not like to go for CDR. It may gradually lose its relevance once all the cases are sorted out. Earlier the CDR mechanism was also giving banks an edge in the sense that CDR gave the borrowers a longer repayment schedule and banks got a longer period to restructure without having to classify a loan as a non-performing asset (NPA).

In the second quarter ended September 30, 2015, SBI s profits grew over 25% buffered by Rs 425 crore capital from its overseas balance sheet and profit from sale of investments Rs 1,000 crore. What is the bank doing to earn from its core operations.

Our incremental credit growth during the quarter was Rs 56,966 crore. Not a small amount, considering that the wholesale demand for credit is yet to pick up. But the bank credit growth is a proxy to the economy. If the economic growth picks up naturally our core income will also rise. There is nothing wrong in bringing back capital from overseas. We have excess capital in our overseas branches it is being brought back to India. When the economy picks up it will be reflected in credit growth. SBI is often looked upon as the proxy to the Indian economy.

Will you elaborate a bit about the fundraising plans of the bank?

We will not be going for any capital raising initiatives, at least in the near future. We are well-capitalised. We have a capital adequacy ratio of 12.17% at the end of the second quarter.