Faced with rising stressed assets over the past two years, the nation's largest bank SBI has said it does not expect to come out of the woods till the end of 2014 and an uptick in growth is central to the turnaround of the banking system.
"Even when I joined I had said that I do not see anything(improvement in asset quality) before three quarters and I continue to maintain that. I don't think you can see a turnaround that fast," State Bank of India chairperson Arundhati Bhattacharya told PTI in an interview. Replying to questions on bad assets, she said some improvement may be seen after the forthcoming general elections but any concrete signals can come only towards the end of 2014.
"You would see the stress lessening when you see GDP growth going up. Till such a time, the stress is going to be there," she said, adding that revival of stressed projects is essential for the economy to revive.
Bhattacharya said she hopes that clearances granted by the Cabinet Committee on Investment (CCI) will result in some loan demand by March, as state-level approvals are likely to be secured by the companies over the course of this quarter.
CCI, since last June, has cleared 128 large projects worth over Rs 4 trillion (Rs 4 lakh crore), while over 200 more projects involving more than Rs 14 trillion are still stuck for want of various approvals. After the approval, projects need certain state-level clearances as well.
Hence, the tepid loan demand from corporates even in the current busy credit season. Till mid-December credit growth was a poor 14.7 per cent, according to RBI data. SBI's net profit dipped 35.08 per cent to Rs 2,375 crore in the July-September quarter because of 43.99 per cent jump in provisioning for bad loans at Rs 2,646 crore and a massive spike in pension coverage. Bhattacharya, who took over in October before the Q2 earnings were released, said that the dip in profits and a surge in stressed assets was not due to a "clean up".
The bad loan numbers represent a true picture of things at the bank and no "clean-up" has been done by her, she said.
"Absolutely no extraordinary cleaning has been done.The economy is bad, we are doing a lot of provisions on pensions and wage revisions. That is how the numbers were impacted. It has nothing to do with my coming in and that anybody else in position would have also reported the same set of numbers," Bhattacharya added.
The Reserve Bank, in its financial stability report released last week, flagged the Non Performing Assets issue and said the health of banks worsened in past six months.
"The strain on asset quality continues to be a major concern," the report said, adding that in a base case scenario - with the present conditions continuing - gross NPAs will rise to 4.6 per cent by September 2014 from 4.2 per cent in September 2013, and if economic conditions deteriorate, this will be 7 per cent by March 2015. The report also noted that the amount of recast loans touched an all-time high of 4 trillion or 10.2 per cent of the overall advances as of September 2013.
The state-run banks will be the worst-affected, the report said and pegged their gross NPAs at 4.9 per cent by March 2015, and that of new private sector banks at 2.7 per cent. If the restructured assets are added, the total stressed advances ratio rose to 10.2 per cent in September 2013 from the 9.2 per cent in March 2013, the RBI said.On pension provisions, the first-ever woman SBI chief said the issue of higher provisions arises from the change in mortality table by the insurers, which has gone up to 81 years from 76. "The bank has to provide for Rs 2,400 crore towards pensions, and we are doing Rs 600 crore each quarter. We have done two quarters and we will be doing two more quarters and then we will see how it is," Bhattacharya said. On the wage hike she said, no final settlement has been arrived at by the IBA.
For banks, Bhattacharya said, problems arise because of the mismatch in the funding patterns wherein banks fund long-term assets with short-to-mid-term money. At present 10-year deposits are funding assets with a lifespan of over 30 years and any hiccup in the project is bound to create problem for any bank, she said. "You are front-loading repayments. In case there is any diversion on execution or on the fact that growth assumptions are not correct, then you will see stress appearing in the system," she said.
"We need to strengthen the working of all the spokes in the ecosystem, like an improvement in takeout financing and corporate bond market to tide over the issue," she added. Bhattacharya also said that although the existing laws are
adequate to tackle the bad assets/recovery issue, there is a need for institutions like the debt recovery tribunals to function in a timely manner as a precondition for faster resolution of recovery cases.
"Limited period should be given for the company. We get injunctions from various agencies and courts, which delay the recovery process," she said.
The government and the Reserve Bank have repeatedly expressed concern over the bad assets issue and also come up with a slew of changes in the regulations periodically to make it easier for banks to recover funds.
The latest includes a discussion paper by the RBI which is aimed at early resolution of NPAs and NPA management.