Rajnish Kumar, chairman designate at State Bank of India (Source: Bloomberg)

SBI Chief Says Bad Loans To Fall In 2018 As Resolution Gathers Pace

The head of India’s largest lender said the banking sector’s bad loans will significantly decline this year as resolution of stressed assets under the new bankruptcy law is at an advanced stage.

“The year 2018 will be much better as far as the non-performing assets in the banking system are concerned,” State Bank of India Chairman Rajnish Kumar told Bloomberg on the sidelines of the World Economic Forum at Davos, Switzerland. The process of recognising bad assets will most likely be over by the December quarter and resolution, through the Insolvency and Bankruptcy Code, will pick up pace thereafter, he said.

The Insolvency and Bankruptcy Code lays down provisions for creditors to initiate a process that may result in resolution or liquidation. The Reserve Bank of India, last year, issued two lists of potentially defaulting companies against which lenders could initiate insolvency proceedings.

As the process gathers momentum, banks will need government support to make up for the gap in their provisioning for bad assets, he said. For that, the government’s proposed Rs 2.11-lakh-crore recapitalisation plan is a “positive” move, Kumar said.

Stable Interest Rates

The SBI chairman expects policy rates to remain stable for at least a year in the backdrop of inflationary pressures.

Our sense is that going forward, the inflation numbers will stabilise and at least for the next six months there will not be an up-move in terms of the central bank’s policy rates and the government bond yields.
Rajnish Kumar, Chairman, SBI

Assessing Demonetisation

A little over a year after demonetisation was announced, Kumar said it’s “still too early” to conclude whether the clampdown on nearly 86 percent of the currency notes in circulation was a success. “People need to first decide the criteria for terming it as a success or failure.”

If the move were aimed at achieving a greater formalisation and digitisation, then the decision was successful, he said.