Rajnish Kumar is chairman of the State Bank of India. He joined the bank as a probationary officer in 1980. Kumar, 60, said SBI decision to buy assets of NBFCs is not a bail-out but a “win-win” situation for both the bank and the NBFCs. Kumar, in an exclusive interview to CNBC-TV18, said that it is a good and perfect solution as they have the capital, liquidity and the lender is using this an opportunity to to expand its loan portfolio at attractive rates.
Is this a bail-out to an ailing sector or is it that you are going to convert their problem into your opportunity?
Why are you saying that it is a bail-out? It is a win-win situation for everyone. Whenever you take such action you don't take it with a selfish interest for sure. Unless you create a situation where everybody emerges to be a winner it does not succeed.
The idea is that every year we keep on purchasing the portfolio. The focus is always on the purchase of priority sectors portfolio because there SBI is short of the target and as a matter of strategy, we have been doing it. We have done it as per the well-defined process and the loan policy of the bank.
Now in a situation where there is an opportunity where some of the NBFCs may be looking for a solution to the asset and liability management (ALM) problem, I won't call it a bail-out.
There is a situation where there is an asset-liability mismatch then through this action what will happen is, they can off-load some of their portfolios and we are a willing buyer and their dependence on the short-term paper will go down. So, it is a very good and a perfect solution. At SBI we have the capital, we have the liquidity and you have been telling us that the bank is not growing as fast as it should, so why not make use of this opportunity.
That is a statesmanlike answer I must say, I will tell you why I called it a bailout. I have spoken to at least half a dozen bankers today asking them if they will lend because NBFCs tell us that even the sanctioned limits are not being released by many banks and the bankers ask why should they release it now. The mutual funds are not touching it because they are afraid that the paper may not be good quality and asking why should they pick-up their rejects. This was the response I got from some of the banks?
I don't know which banks you are referring to because we have been extending support to NBFCs throughout. Earlier also I had made a statement that whatever sanction limits are there, they all are available. We are not withdrawing from that. But the fact is that mutual funds rely more on the rating.
Whereas when the banks take any investment decision or credit decision it is done on the basis of a very detailed loan appraisal. That way I can say that the credit assessment which bank does has much more due diligence involved than a mutual fund will do. So that is a key difference.
If banks are hesitant on couple of NBFCs where they believe that the credit quality does not meet the standard and it is not today, it may be a situation whenever you are doing a credit assessment that the view on different NBFCs are different even if their external rating might be the same and that is how the lending policies of the banks are governed.
So, in such a scenario, the portfolio purchase or securitisation creates a situation where there is a due diligence done on the pool. At SBI, we have been purchasing portfolio, we have even aware that how does the portfolio perform or what is the quality of lending. So, this appears to be the best solution in today's circumstances.
There were other private sector bankers also who exactly said the same thing. Their point is that their exposure to some of the NBFCs could go down in rating if the liquidity tightness continues. At such a point they are also willing to buy because rather than take exposure to one NBFC which could go down from 'A' to BBB+ or something like that, they might rather have an exposure to a diversified portfolio. So, you see a lot of sales happening and do you see them happening at very attractive rates for the bankers because you have the money and therefore you can call the tune?
SBI is a very responsible bank. We would be mindful of that fact that if there is an opportunity to buy the portfolio at a rate which is suitable for the bank and which is suitable for the seller, we will be looking at that but we are not loan sharks. SBI does not work on that principle that here is the opportunity and you charge whatever you want to charge.
Has any deal been done already?
It is a continuous process, the only thing that we are doing is, we are stepping up the target. It is an open invitation that if you meet our criteria in terms of the rating of the originator, the due diligence on the pool to be purchased and the pricing, servicing fee, the risk sharing, if the criteria is met then we are willing and we have the funding and we have the capital. It is an invitation to any NBFC who wants to come, they can initiate dialogue with us and we ourselves would also be approaching the NBFCs on our own also.
Typically how quickly can this be concluded? Should we expect to hear from you in a day or two?
There is a little bit of time when there is a pool available. Due diligence takes time because you have to go through due diligence on the pool but the process is much faster than giving loans to NBFCs.
We have to just do the analysis of the pool - whatever is available, negotiate the pricing and the servicing fee and the rating of the originator, in any case, is available to us external and internal both.