SBI Expects Fresh Restructuring Requests To Come Only In September

The chairman of India’s largest lender expects fresh requests for restructuring to come only in September as the central bank has granted time to the banking sector to manage asset quality concerns.

That may not be a big concern for State Bank of India as fewer accounts are likely to default this year and legacy issues have already been provided for, Rajnish Kumar told BloombergQuint in an interview. The bank also expects fewer corporate loan accounts to not pay dues after Aug. 31, when the RBI’s loan repayment moratorium ends, he said, adding this would ensure its balance sheet is protected.

SBI, Kumar said, would have reduced its net non-performing assets to Rs 27,000-30,000 crore by the end of the ongoing financial year from Rs 49,000 crore a year ago, if not for the Covid-19 pandemic and a subsequent national lockdown that shuttered all but essential activity, halting consumption and economic activity.

That’s because the bank expects loans worth Rs 23,000 crore to be resolved during this fiscal. Yet, Kumar shied away from giving an estimate on the asset quality numbers under the current circumstances.

“The way we’re looking at Covid-19 is that there’s an impact which will get reflected on the balance sheet of all banks,” he said. “But we have a cushion of about Rs 23,000 crore (of loan accounts which will be resolved this year) which is better than the other banks in the system.”

RBI Moratorium Blues

According to Kumar, borrowers representing nearly a fifth of the bank’s outstanding loans have deferred repayments under the moratorium—significantly lower than the 65% reported by state-run peers like Bank of Baroda. Even private banks like ICICI Bank Ltd. and Axis Bank Ltd. have a higher moratorium amount.

“This is because of the segments that SBI operates in, especially the government sector where people haven’t lost jobs or faced major salary cuts,” the bank’s chairman said, adding that most moratorium requests have been from the its retail and MSME portfolios.

The bank, while announcing its earnings for the quarter ended March, reported that borrowers representing nearly 13% of its corporate loan portfolio had opted for the moratorium.

Kumar, however, warned against reading too much into the moratorium figures, since many borrowers have taken benefit of the repayment deferrals to hold on to liquidity. Once the moratorium lifts, repayments for a large portion of borrowers should come back to normal, he said.

Analysts, however, are closely examining the moratorium numbers as they expect it to result in higher default rates. According to Macquarie Research, even a 20% default rate among moratorium accounts could result in doubling of the non-performing asset figure for the banking industry.

Falling Deposit Rates

This month, the banker to every fourth Indian said it's reducing the interest rate it pays on savings account deposits by 5 basis points to 2.7% per annum for amounts up to Rs 1 lakh—the lowest in India.

And Kumar expects interest rates to fall further as India’s in a softer interest rate scenario with negligible inflation. “The priority of the RBI is that growth is receiving priority at the moment and there are reasonable signs that inflation is virtually non-existent... If there is a further cut by the RBI on the policy rate, we have to review our interest rates as well,” he said.

SBI, however, has tried to ensure its depositors aren’t badly affected by maintaining competitive deposit rates. Since a number of senior citizens bank with SBI, we’re trying to ensure that we don’t pass on the entire policy rate cut to depositors, Kumar said.

‘Investors Decide Valuations’

SBI reported a net profit of nearly Rs 14,000 crore in the year ending March 2020—the highest in its history. This included one-time gains from the sale of the bank’s stake in its cards unit, SBI Cards And Payment Services Ltd. Its gross NPA ratio dropped to 5.15% as on March 31 as did its rate of slippages.

Still, the bank’s stock continues to trade below its book value. According to Kumar, even after excluding SBI subsidiaries from the mix, the bank is currently trading at a heavy discount.

“It’s the investors who determine what the market valuation of the bank is,” Kumar said. “We can only say that the bank is on very strong footing. We’ll continue to deliver on our performance and let the investors decide the value.”

Watch | SBI Chairman Rajnish Kumar on state of affairs at India’s largest bank