India’s largest public sector bank - the State Bank of India (SBI) - will ensure that there is no divergence in bad loan reporting for the year ended March 2018, Rajnish Kumar, Chairman of the lender told BloombergQuint in a phone interaction on Monday.
His assurance comes after SBI disclosed a bad loan divergence of Rs 23,000 crore for the fiscal year ended March 2017, while reporting its October-December quarter results. SBI reported a quarterly loss for the first time in at least 17 years as provisions for bad loans increased and its treasury operations turned unprofitable.
The divergences were only a result of a “timing difference,” Kumar said while explaining that most of these accounts were in stressed assets pool but may not have been classified as non performing assets (NPAs) as of March 2017.
In August 2017, the Reserve Bank of India (RBI) asked banks to start disclosing a divergence in the quantum of NPAs reported by banks and those assessed by the regulator as part of its annual inspection. The RBI told banks that any divergence more than 15 percent of the disclosed NPAs should be reported.
In the case of SBI, the divergence of Rs 23,000 crore was 21 percent of the reported NPAs.
Bad Loans: Where From Here?
For the quarter ended December 2017, SBI reported a jump in gross NPAs to Rs 1.99 lakh crore compared to Rs 1.86 lakh crore in the previous quarter. The gross NPA ratio increased to 10.35 percent compared to 9.83 percent.
The elevated bad loans and high provisioning requirements have meant that credit costs for the bank have remained high in 2017-18. Kumar, however, said that he expects credit costs to come down to near 2 percent in 2018-19 as bad loans start to see resolution.
The credit cost reflects provisioning as a percentage of total advances.
“The credit costs are higher because of the aging of NPAs,” he said. By September this year, large bad loans will be out of the company’s books, either through resolution or through write-downs, he added. As per the RBI’s rules, an account which has been an NPA for longer attracts higher provisions. This is known as ‘aging of NPAs’.
SBI, along with other banks, is in the midst of resolving large stressed assets under the Insolvency and Bankruptcy Code (IBC). The 12 largest cases were admitted for insolvency proceedings in mid-2017. The 270-day deadline for resolution set under the IBC will expire in the first half of 2018.
Muted Credit Growth
For the quarter ended December 2017, SBI reported muted growth of 2 percent in advances, even though retail loans rose by 13.6 percent. Kumar expects credit growth to pick up to 10 percent next year, on the back of continued strength in retail credit. The bank, however, is still treading cautiously on corporate credit, Kumar said.
Yes it is a fact that our corporate credit growth has been muted but one is a very conscious decision that if the pricing is not to our liking, then we are not going to take the credit.Rajnish Kumar, Chairman, State Bank of India.
Watch the full interview here.