The Reserve Bank of India 's new rules on bad loan recognition and resolution is a big positive for banks, said SBI chairperson Arundhati Bhattacharya.
Among other things, the new rules reward banks for early recognition of stressed loans and also make future loans costlier for borrowers who do not co-operate in resolution of bad loans.
Also Read: SBI raises over Rs 7,000 cr in share sale via QIP
Speaking to CNBC-TV18's Latha Venkatesh and Sonia Shenoy, Bhattacharya said the joint lender forum will help control corporate accounts more and high provisioning is likely to keep a check on lenders.
On tepid response to SBI 's qualified institutional placement of shares, Bhattacharya said the recent sell off in emerging markets weakened demand from institutional investors.
The bank was looking to raise around Rs 9,500 crore through the QIP, but had to settle for Rs 8,032 crore and that too mainly with support from the LIC and treasuries of other state-owned banks, which pumped in close to Rs 5,000 crore between them.
She said the QIP had got had got good response from FIIs during roadshows, but sentiment for emerging markets in general soured following the currency crisis in Argentina and Turkey.
She said the QIP would have got better response if it had been launched a week later. "I don't think we need to raise capital over next 2 years," she said adding that the capital adequacy ratio post QIP will be 13.2 percent.
Below is the interview of Arundhati Bhattacharya with CNBC-TV 18's Latha Venkatesh and Sonia Shenoy
Latha: Did the response to the Qualified institutional placement (QIP) disappoint you, weren't you looking for Rs 9,500 crore, you had to make do with Rs 8,000.
A: No not really, I think we did very well, the amount that we could have raised was closer to Rs 9000 at the price band that we went and I really wanted a little space over there for us to try a possible Employee Stock Purchase Scheme (ESPS). I have been talking about trying and ensuring a lot of collaboration across the entire organisation and we felt that ESPS could be the right thing to take our employees along. But of course this is subject to a lot of approvals from all the stake holders so I was quite happy with the Rs 8000 crore that we could raise. And if you can see the kind of challenging environment we were in and the huge size of the issue, I think we did exceptionally well.
Sonia: So now with this Rs 8000 crore for how many more quarters will SBI not need to raise money?
A: If you look at the growth targets which are at this point of time quite muted, I don't think we need to go back for two years. But depends whether growth picks up a lot in which case we might have to revise that but otherwise I think two years is what we are looking at.
Latha: What is the capital adequacy now and with the kind of growth that you have in mind what will be the capital adequacy say next year?
A: We are looking currently at around 13.21 percent with this raising and we intend to stay at around 12 percent.
Sonia: Can you give us a flavour of what kind of investors came into the QIP whether there were long only funds because the response as we all know has been not as good as some were expecting?
A: That is where why I feel very satisfied because we have got long only funds, we have got some very mark-key funds. Also you have to understand we were restricted by the 49 numbers, we couldn't go beyond that so that was another limitation that we had. So yes the names that came in are long only funds.
Latha: The breakup is almost Rs 5,000 crore has come from Indian banks and LIC and Rs 3,000 crore apparently has come from abroad. That is a much muted response from foreign institutional investors (FIIs). What were their concerns?
A: When we went on the road shows, their response was excellent but the date on which we launched, just before that the Argentine peso had devalued so there was already a little bit of a pressure and then what happened was on the day we launched our own central bank raised rates by 25 bps, which was not very much but that night the Turkish central bank had a 4.5 percent hike. As a result the entire emerging market basket came under stress and there were people who were interested but the result was that they went down on the deal size and some of them decided that they would wait on the sidelines and watch and in view of the entire emerging market sentiment being on the weaker side, this was something that happened just as we launched.
Latha: So your point is that if you had launched a week earlier or maybe even a week later, your response could have been much better?
A: That is right and today the world is very volatile so you do not know what happens and as I said that nobody expected that the Turkish central bank would do a 4.5 percent raise. So these are sentiments that matter across the globe, fund allocations happen in the form of baskets and now we are part of what is been called the fragile five; we are also part of the emerging markets. So, all of these sentiments across the board all of these things matter and that could have been one of the reasons.
Latha: Will you not require some of this capital for Basel III requirements for counter cyclical capital requirements. In that case will you have to perhaps tap the market earlier?
A: We have worked out a roadmap and Basel III and everything kicks in only by 2018, so there will be a graduated raising so as to ensure that by 2018 we are there to meet the targets and as I said we probably will be okay for two years. It all depends upon the way the market grows or rather the economy grows for us but at this point of time it looks like we should be alright for two years.
Latha: Yesterday the RBI also notified the early non-performing loans (NPL) recognition framework and the fact that if loans are not resolved after being taken in by a joint lender - after being recognized a stressed, it will invite accelerated provisioning. Immediately as an investor how should we understand the P&L impact, should we expect that for the banking sector in FY15 there maybe a problem of provisions but it is good in the long run, is there an immediate negative?
A: No, I don't think there is an immediate negative. In fact there should be an immediate positive. The reason is these early warning signals were already being looked at by the bankers individually in the banks. The quicker you get an account on to the growth path or on to the right path, the faster will be the recovery. What was not happening was this joint lender forum that we are talking about. That was not happening because there was no regulatory force behind it. It was happening where consortiums already existed but where it was a multiple banking, it was very difficult to bring discipline into a borrower that might be undergoing stress.
Now with this what happens is that we get to meet together to form that consortium -- basically the joint lender's forum is what we used to call consortium. So once you get the consortium together it is much better and much easier to control a corporate because everybody knows what is happening, the corporates cannot play one against the other and all of us know what are the steps being taken. So I believe definitely in the longer run, this discipline is very much required so it will be helpful.
Even in the shorter run I don't see why the aggressive provisioning should come in rather the fear of the aggressive provisioning will ensure that the lenders also remain disciplined. So to that extent, this is a very good step. Let us see how it works out. I am sure, RBI is aware of our challenges as well as our requirements and should it be required, we can always request RBI to look at things in a light that it doesn't make it way too onerous for the bank. But having said that, I think there is a very good step.
Sonia: We have had some quite disappointing numbers coming from some of the other public sector undertaking (PSU) banks the likes of Bank of India (BoI), Indian Overseas Bank ( IOB ) etc restructuring has gone up, asset quality has worsened, do you believe that the worst of the NPA cycle is not behind us. In fact, it may just deteriorate in the next couple of quarters?
A: I have been saying time and again that you should see the up turn after the GDP's turn. The GDP that is the growth numbers need to come back, demand has to come back, corporates can only perform when the demand comes back. If the demand doesn't come back and if the GDP continues to shrink then you cannot see how can the corporates come out of this cycle. But whether the GDP is at the bottom, that is the question. If the GDP is at the bottom -- somehow I was reading in the newspapers today that the consumer surveys indicate that there is a greater business confidence now. If the GDP is at the bottom then it will take about two quarters for us to start showing better results. If the GDP is not at the bottom then I cannot say how long this will continue.
But frankly if you ask me, I don't think we should start panicking regarding restructuring and bad loans. We have said this earlier and we say it again that many of these things, the assets are already on the ground, the quality of the assets is good. There is a lot of demand in the economy, which is not picking up on account of various circumstances in and around the economy. If we could get those things right, I think the governor also has said yesterday that the priority should be to get the stalled projects going, the priority should be to get the investment cycle on. Once that happens, you will see much better results.
Yesterday, in fact I was at this Mint Conclave and this question was asked and I very clearly said that if you are proud about the growth of 2007-2008, that growth was financed by the banks. That growth came about only because there was a lot of investments and all of us participated in it. Those investments have resulted in assets getting built, roads have been built, power plants have been built, core assets have been built. It is a question of using those assets for productive purposes. Once that happens, you will see all of this risk reducing.
