The State Bank of India (SBI) is expecting a recovery from the bankruptcy cases in the National Company Law Tribunal (NCLT) this financial year, said SBI chairman Rajnish Kumar.
The public sector bank posted a
net loss which doubled on a year-on-year basis.
Kumar said Rs 78,000 crore of losses are in the first two lists of the NCLT and hence expects the recovery this financial year itself.
The bank's net non-performing assets (NPA) stood at 5.73%, slightly higher than the 5.61% posted in the last quarter, while the gross NPA stood at 10.91%, higher than third the quarter's 10.35%.
Kumar said the new watchlist for the bank includes Special Mention Accounts (SMA) — type two and type one and a few accounts from type zero. The watch list consists of corporate accounts.
Watch: Expecting recovery from bankruptcy cases this year, says SBI chief Rajnish Kumar Edited Excerpt: Q: You said that there is watch list of Rs 25,000 crore. Does it include all the troubled assets in the sense when you did the last presentation you told us there are some Rs 6,000 crore in Scheme for Sustainable Structuring of Stressed Assets (S4A), there is some Rs 20,000 crore in 5:25. Basically, standard restructured some Rs 20,000 crore assets were there, Anshula Kant also told us that the total troubled assets is a little over Rs 50,000 crore. Of that only Rs 17,000 crore is recognised? So, in your Rs 25,000 is all your trouble in that list? A: This list includes, as we said all special mention account-2 (SMA-2) which are being reported to on weekly basis to Reserve Bank of India (RBI). All stressed SMA 1 and a few accounts which were not appearing in SMA, even under the SMA-0 but we believed that they needed to be watched, so those accounts are also included. So Rs 25,000 crore is for the corporate. This is the most conservative estimate. I don’t think that even Rs 25,000 crore will slip, but based on my guidance that our gross slippages in the current year will not exceed 2 percent, so even if I take a worst case scenario that Rs 25,000 crore is NPA and Rs 12,000-15,000 crore is retained NPA, so we are still very much within that guidance. Q: Can you also tell us what exactly was the recoveries, the upgraded and the write offs that you saw in this quarter and what is the expectation going ahead? A: Basically, first for the expectation, you see that Rs 78,000 crore of our loans in NCLT 1 and 2. So, that Rs 80,000 crore in this year is going to be resolved. Whatever recoveries are made will be recovered and whatever is to be written off will be written off. If you take Rs 35,000-40,000 crore of fresh slippages, so we are looking at in fact reduction in our gross NPA by about Rs 50,000 crore. My estimate is that by March 2019 gross NPA figure for the bank should be around Rs 1,70,000 crore. Q: Rs 55,000 crore you expect to recover because at the moment you are standing at 2.23?
b We are expecting at 2.23 so you just take out Rs 80,000 crore out of that and then another Rs 35,000 that fresh NPA so you will reach that number.
Q: This quarter what were the upgrades and recoveries? A: Q4, I don’t have numbers ready, but you have the gross slippages number of Rs 33,000 crore and overall I can say that the recovery in the written off accounts has increased by nearly 30 percent. We calculated on the basis of the opening stock, so overall recovery position in the last year if you look at we have added gross NPA of Rs 95,000 crore. Q: You have said that there will be a reduction in your gross NPAs by Rs 50,000 crore. By when do you expect this? A: March 2019. Q: Can you tell us exactly how many accounts are in NCLT currently and how many will get resolved? I am just trying to understand the resolution process, the timeline and the amount that you are looking at? A: Basically NCLT 1 is 12 accounts Rs 48,000 crore and NCLT 2 is about 29 accounts and Rs 28,000 crore that makes it Rs 77,000. List one we are expecting resolution by second quarter. Earlier my estimate was first quarter, but the way the legal process is going on so maybe there will be a spillover to the next quarter.
One large case all of you are aware that has been resolved and which will result into a recovery and write back of interest income of approximately Rs 1,500 crore for the bank. So, overall our NCLT 1 the provision held is 56 percent. The recovery I will have to do more than 44 percent to take the write backs which is very feasible and we will definitely have a better recovery than 44 percent in NCLT list 1.
Q: You are telling me that SMA 1, SMA 2 and some SMA 0 is in that list. But let me read out your last previous presentation. At the end of Q3 you told us 5:25 cases are Rs 24,900 crore. SDR is Rs 5,825 crore. S4A is Rs 6,101 crore, restructured book is Rs 20,884 crore. Anshula Kant said the total is Rs 50,000 crore. You have recognised only Rs 17,000 crore or Rs 18,000 crore of that what happens to the remaining? A: What you have to realise is that it is the resolution framework of February 12th Reserve Bank of India, right so very clearly they have said SMA 0, 1, 2 even one day default you have to now report. It was like Rs 50,000 crore included many standards accounts and we have done account by account analysis.
One is whatever is being reported to Reserve Bank of India that is included here and wherever we feel any stress is there. We have aggressively put this in the list, so I think now 5:25, SDR, S4A is all history. It was all relevant before February 12th to that extent I must place on record my gratitude to RBI that they have made your life and our life very simple.
Q: I just want to know that all this is included in your Rs 25,000 whatever was S4A and all are already in? A: Everything which we believe that needs to be watched and in the worst case scenario there cannot be slippage higher than this. Q: I will tell you why I am coming back to this. When the February 12th circular of RBI came power companies themselves told us, the APPI themselves told us that above Rs 55,000 megawatts is in danger of that about Rs 20,000 megawatts don’t even have PPA. They themselves the power companies are expecting that about Rs 1,50,000 crore of companies will go to the NCLT. Why is that not showing in your watch list? Some of it should be there no? A: It is showing in our watch list. If you look at Rs 25,000 crore Rs 10,000 crore is power. So very much showing in the watch list. Q: Only that much? A: Only that much rest is all the NPA we have recognised in the first quarter and recognized in the fourth quarter. So, that way power sector we have taken care of whatever stressed was there it has been either sitting in NPA or sitting in my watch list. Q: You said that the first part of the NCLT accounts which is 12 accounts worth Rs 48,000 crore could get resolved by Q2 of FY19. What about the remainder, the Rs 28,000 by when do you think that resolution could happen? A: Year end. Within this year. Q: How much of write in will you get? You said you will get Rs 1,500 crore because of the resolution of this first NCLT case the Bhushan Steel case. How much write in will you get for the remainder of the year, income recognition because of the resolution? A: Resolution like NCLT 1 we have more clarity because most of the cases we know that in which direction are we moving and including one big case where of course unfortunately yesterday the date has been put July. So that was a little bit of disappointment, two months’ time is too long.
But anyway even there we know what the offers are and in what range they are. So when we have done our calculation for NCLT with this thing particular, the calculation is that the recovery should be in the range of 50 percent. But whereas our provision is 56 percent. So 6 percent on Rs 48,000 crore would mean Rs 3,000 crore.
But even after that Rs 2,520 crore I believe there is a scope for further recoveries, but at least there will not be any requirement to make any provision. There may be a timing mismatch.
Q: Are we looking at higher amount of haircuts? I am just trying to understand whether the haircuts on list 1 could be contained at 50 percent and do you think you will have to take larger amounts? A: No, it should be around 50 percent, not more than 50 percent. Q: How much should be work with in terms of a loan growth or an income growth for FY19? A: The entire focus now of the bank is definitely on the income growth and income will improve because all the NPAs and resultantly it has impact on the interest income. So that part because we have already taken all the hits and blows in the last year, so there will definitely be an improvement in the net interest income. For every 10 business point that means additional income of Rs 3,500 crore for the bank.
Other income also the growth has been expected to be good. Last year also it was very strong. Even treasury in a very difficult circumstances they made a profit of Rs 8,000 crore.
So the income and the kind of focus, the sharper focus which bank has brought in on the large corporates, we call them credit like they don’t borrow much but there is large ecosystem around that so bank is trying to capture all the opportunities there.
Q: In terms of loan growth – the corporate growth was very good this time around are you seeing any genuine pickup in private capex and what kind of split do you expect between corporate and retail loan growth in the quarters to come?
A: We have kept retail growth at around 18 percent and average growth we have taken at 10 percent. Large ticket projects are not many but there are few. But what we have to realise is that for example Mumbai-Nagpur Expressway is a huge project of Rs 45000 crore, Mumbai International Airport, the work is going at great speed and there the credit requirement itself will be Rs 10,000 crore. Similarly, Rajasthan Refineries is in advanced stage of financial closure. So, these are large projects in size but the disbursements in these loans takes time.
Other than that the working capital cycle is also showing some signs of recovery and the other thing is that for SBI, the field is wide open and we have put all the organizational structure in place so that we can capture the growth opportunities in the corporate sector.
Q: Now if there is growth, you will need capital – your CET 1 is under 10 percent. So, if you are preparing for this kind of loan growth, will you raise capital this year? A: Our CET 1 is higher than 10 percent, it is 10.68 percent and as far as the growth is concerned right now we have sufficient capital but our estimate is that we may need around Rs 20,000 crore and for that one is that we have opportunities for divesting stake in some of the subsidiaries, which we have identified.
Then Rs 8000 crore we have approval of the board and there will also be internal accruals. So we will see how to meet the gap but I don’t think growth capital will be a constraint.
Q: You won’t ever list SBI MF? A: Not this year, but we are planning for next year and SBI MF is doing exceedingly well. All our subsidiaries have huge value, they have emerged as leaders in their own right in a competitive market. Q: Which is your order of priority – will you likely sell more in life insurance, general insurance or MF? A: Life insurance once the lock-in period is over, if we get a good price we can always dilute 4-5 percent that is easy. SBI Capital Market 26-49 percent for JV partner which we are actively looking for but that may not give a huge amount and in SBI General some stock sale but not an IPO this year.
IPO we are planning SBI Card, SBI General, SBI AMC all three in next year.
Q: Will your treasury enter bond market, most of you have not been buying bonds at all?
Otherwise our treasury also we have desist to a large extent. The modified duration has come down to 2.43 and the PV0 also has been reduced by 10-15 percent. That way treasury has done whatever they needed to do and depending on market situation, wherever there is a right opportunity and at a right price, treasury will definitely buy.
A: I don’t think we are not buying bonds at all but the treasury will take a call depending on what is the outlook for the bond yields because they cannot be in a situation where they buy today and tomorrow they have to make a mark to market loss. However, if yield expectation or treasury is met in terms of what would be impact on mark to market, they would take a call.