Arundhati Bhattacharya, chairman of the State Bank of India (SBI). (Photographer: Kiyoshi Ota/Bloomberg)

SBI Rules Out Big Hit On Bottomline Due To 12 Large Bad Loan Accounts

The nation's largest lender State Bank on Tuesday ruled out additional provisioning towards the 12 largest bad loan accounts which have been referred to insolvency proceedings denting the bottomline very hard as most of the provisioning has already been done.

"The increased provisioning requirements, more or less, in all of these accounts we have pretty large provisions. But yes, we have to make a little more but it should not very badly impact our earnings going forward," chairman Arundhati Bhattacharya told reporters after the AGM in Mumbai.

She was responding to questions from the media about the possibility of increased provisioning towards the 12 RBI-referred accounts impacting the bank's bottomline.

Domestic ratings agency CRISIL, on Monday, said lenders will have to take a huge haircut towards these NPAs, led by public sector banks.

It has pegged an additional burden of Rs 40,000 crore or 25 percent more towards provisioning for these 12 accounts which have been sent for insolvency by RBI.

These 12 large accounts had become NPAs by end-March 2016 and CRISIL estimates show banks had already provisioned 40 percent for these NPAs worth Rs 2 lakh crore or about Rs 80,000 crore.

We estimate a 60 percent haircut would be needed on these loan assets. That would mean banks will have to increase provisioning by another 25 percent or Rs 40,000 core more this fiscal, compared with 9 percent in the last.
CRISIL Note

The total NPA provisioning of banks stood at Rs 2.2 lakh crore as of FY17, up from Rs 2 lakh crore in FY16.

Parrying a question on whether RBI has been very stringent or overcautious on with these accounts, she said "the regulator has done what it felt was right. Now whether it is overcautious or whether it is in order, we will come to know with time."

"The only thing is that they have given us three quarters to do it which I think is adequate. Also, provisioning doesn't mean write-offs. It merely means that you keep the provisions if things are better, and then we can write it back," the chairman of SBI which is the lead banker to six of these 12 accounts said.

But she was quick to point out that the problem with higher provisioning is that "if a buyer comes to take over that account will immediately take that as the lowest level of write-off or haircut. So, to that extent, we may have realised better value if we haven't exactly quantified the amount of provisioning that we made."