'Need to provide Rs 5,000 crore to increase coverage ratio'

State Bank of India Chairman OP Bhatt addressed a press conference to announce the bank’s results and dwell on his expectations in the months ahead. Excerpts:

Provisioning for bad debt
At the end of September, the provision coverage ratio was 42.87 per cent, compared to 45.15 per cent three months ago. However, the provisions are more than what has been prescribed by the Reserve Bank of India (RBI). To meet RBI’s fresh stipulation of 70 per cent loan-loss coverage, we will need to make an additional provision of Rs Rs 5,000 crore by September 2010. We feel the regulator may give additional time to banks to meet the new norms. Our board will decide once the final guidelines are announced.

Rise in net interest margin (NIM)
The bank’s NIM improved to 2.43 per cent at the end of September 2009 as against 2.30 per cent in the previous quarter. We expect an improvement of 10-15 basis points each quarter. The cost of resources continues to decline and the bank is deploying resources in high-yielding advances, which are further helping us improve margins.

Casa growth
We expect to increase the share of Casa (current and savings accounts) to over 42 per cent from 40.96 per cent at the end of September. With an increase of 126 points in a quarter, we saw the highest increase in the industry. We have retired high-cost debt and high-cost deposits of around Rs 1,50,000 crore are getting repriced at 200 basis points lower rates.

Credit growth
We still feel we can grow 22-25 per cent on a year-on-year basis. There has been a pick-up in demand and the trend continues. This (third) quarter, we have disbursed Rs 21,000 crore. We have a strong pipeline of projects, there is a large amount of loans sanctioned but not disbursed and there is an increase in home loans that we are sanctioning.

Lending rate cut
There is no scope to reduce lending rates unless you lower the cost of deposits. The cost of deposits is very rigid and it takes a year to 18 months to correct it.

Capital requirement
The bank has projected a capital requirement Rs 36,000 crore over the next five years to maintain a capital adequacy ratio of 12 per cent.