With the government hinting at making agriculture and farm distress a focus area in Budget 2018-19, the country’s largest lender believes farmers must get adequate returns for labour, time, and investment. State Bank of India (SBI) Chairman RAJNISH KUMAR, in conversation with Abhijit Lele, also says that the overhang of corporate debt stress will begin to recede in the next two-three quarters. Edited excerpts:
Is the demand for credit picking up in the second half of FY18?
It is picking up. In any case, December to March is part of the busy season and we will definitely see improvement in credit offtake. Though the large capex cycle is still down, the working capital requirements in the busy season go up. Credit growth is still largely driven by consumption.
What about micro, small and medium enterprises (MSMEs)?
Speaking of SBI, we have seen better growth in credit pickup in November 2017 over October 2017. Going forward, the disbursements to MSMEs will increase in the last four months of the financial year. We have a lot of sanctions in place where disbursement is yet to happen.
Is the disruption caused by the goods and services tax (GST), especially for MSMEs, settling down?
I believe so. We have taken steps to ensure more credit to the SME sector, be it our processes or the new lending method (cash-flow based assessment). All that is helping and the GST enables us to have a better assessment of cash flows of the borrower.
All proposals are being processed on the basis of their cash flows.
In the farm sector, giving remunerative prices for agri produce seems to have taken a backseat in the last two years. Is it a matter of concern as it impacts farmers’ ability to repay loans?
It is a delicate balancing act. Input costs of farmers have increased so obviously that it has implications on the minimum support price (MSP).
We talk a lot about return on equity for industry. But, I think in agriculture, also when farmers put in money and labour, it is natural that they get adequate returns. When you look at the MSP, it also has an element of input subsidies, be it credit or seeds, for many crops. I think this requires a fresh look.
Won’t a revision in MSP suffice?
A thorough review is required for the farm sector. An expert committee can look into this issue and see how to improve income and agriculture productivity. The productivity gains will benefit farmers. They need remunerative price for labour, money, and time they put in.
What is the assessment of the provisioning requirements for the stressed cases referred to the National Company Law Tribunal (NCLT)? Could excess provisions in the steel sector help to set off requirements for other cases?
We look at provisioning on a portfolio basis. In some accounts, we may need more provisions, while in some we may need less. For a couple of accounts, we are holding 90-100 per cent provision, but recovery may be in the range of 30-35 per cent. In such cases, there may be write-back. Once we have achieved a provisioning level of 55 per cent, we are almost fully providing for expected loss.
Can we expect substantial recoveries from some big non-performing asset (NPA) cases, especially those in the NCLT?
In some cases, the resolution will definitely happen in the fourth quarter (of FY18) or the next quarter, because even if we put in a resolution plan, it will take time for the entire process to complete. Our efforts will be to implement resolution plans by March 2018.
Is SBI looking at referring some more cases to the NCLT beyond the RBI’s second list?
Now it has become a normal process. If we see signs of distress in an account, we have to decide whether to refer it to the NCLT, go for recovery outside the tribunal, or do a one-time settlement. We will choose the best option.
SBI’s gross NPAs have seen a drop in Q2 after a spike in Q1. Will this trend continue and will NPAs go below 10 per cent?
We have to see gross NPAs and restructured advances together. Taken together, I expect the situation to improve.As for the combined number declining to single digit (11.63 per cent in September 2017), it will take time because the denominator (loan book) is not increasing. The size of credit portfolio is more or less static for some time.
This number should also go up for the overall percentage to come down. The overall size of the stressed book in absolute terms will not increase. It will start to shrink in two-three quarters as many of the cases referred to the NCLT will get resolved. We are in the resolution phase; the recognition phase (of stressed loans) is more or less over.