Banking outlook: SBI allays Moody's concerns

Says challenge is to lend profitably

A day after global ratings agency Moody’s gave a negative outlook to the Indian banking system, State Bank of India (SBI), the country’s largest lender, today sought to allay the concerns, saying the banking industry had a positive outlook.

“The outlook for the Indian banking industry is positive. Indians are good savers with 30 per cent of the country’s GSDP (gross state domestic product) going into savings. The banking industry has good prospects, though our major challenge is to lend profitably,” SBI Chairman Pratip Chaudhuri said.

On rising non-performing assets (NPAs), he said: “The NPA issue is a national issue. Many companies are finding it difficult to service their loans. Still, our NPAs are well under control.”

In its latest report on Asia-Pacific Banking Outlook, Moody’s said impaired loans “are yet to peak” among India’s public sector banks. Though the government is “likely to remain supportive”, options for the Reserve Bank of India (RBI) to slash lending rates are limited due to high inflation and the “modest fiscal capacity”, it added.

Amid high inflation and the Centre’s inability to rein in fiscal deficit, RBI has not given in to pressure to ease interest rates, which are the highest among the BRIC (Brazil, Russia, India and China) nations. However, the Moody’s report said interest rates were likely to fall this year, but they would still remain higher than the rest of Asia.

Chaudhuri said his bank had requested RBI to cut CRR (cash reserve ratio, or the portion of funds banks are required to park with the central bank) by 100 basis points and repo rate, the rate at which RBI lends money to banks, by 25 basis points.

One basis point is one-hundredth of a percentage point.

“Economists feel high interest rates can lead to stagflation (a situation characterised by high inflation, slow economic growth and high unemployment). Inflation is largely due to higher prices in manufacturing and it can be brought down by investments which can happen only when interest rates are curtailed,” said Chaudhuri.

India’s wholesale price inflation moderated to 7.18 per cent in December from 7.24 per cent in the previous month, but it is still above RBI’s comfort zone.

On the compliance with the stricter Basel-III regulations, which require higher capital reserves, the Moody’s report said most Asian banks complied with the requirements, but the pressure to compete with peers from the western countries facing delays in execution might have forced countries like India to delay implementation.

To ensure implementation of Basel-III norms, the government wants all public sector banks to be well capitalised, the SBI chairman said. “SBI has raised Rs 7,500 crore in the first half (April-September) of this fiscal. We are also going to receive an amount of Rs 3,000 crore from the government as capital infusion. Our capital adequacy ratio is expected to be close to 11 per cent by the end of March.”

Asked if SBI was contemplating legal action against the grounded Kingfisher Airlines, which is not servicing its loans, Chaudhuri said: “Kingfisher has been asked to raise equity of Rs 2,000 crore. We are in constant dialogue with the company. But I would not like to foreclose the scope of our discussions.”