State Bank of India sees lending growth accelerating

By Devidutta Tripathy and Clara Ferreira-Marques

MUMBAI (Reuters) - State Bank of India expects credit growth to accelerate in the year beginning in April to as much as 15 percent, as the economy picks up and the bank begins to work through its bad debt pile, its chairman said on Tuesday.

Arundhati Bhattacharya said in an interview that increased investment from India's large corporates, including in government auctions of mobile airwaves and coal concessions, would help fuel growth and speed up lending after "very very low" credit growth this year.

For the current year ending this month, the country's largest lender expects credit growth of below 10 percent, she said.

"While we have grown slowly on the top line, we have cleaned up our balance sheet," Bhattacharya said. "Overall the impact is large, but we are comfortable with this. We believe this was a period of consolidation."

India's economic slowdown over the past two fiscal years has dragged banks' loan growth levels to multi-year lows, while bad debts surged as companies struggled to repay.

State-run SBI, with 215,000 employees, more than 16,000 branches and roughly a quarter of India's banking assets, was among the casualties and bad loans swelled.

Bhattacharya, who has led SBI since late 2013 and is one of the country's highest profile bankers, said it could take another three quarters for the bank to see a turnaround in bad loans, though the level of strain was lessening.

"Still, there are many corporates that are on the precipice, and for them to recede from the precipice, we need economic activity to happen," she said. "We want that economic activity to kick up into high gear."

Restructured and bad loans together account for more than a tenth of all Indian bank loans. That portion was 8.6 percent for SBI as of December -- bad loans alone rose only marginally from a quarter earlier to nearly $10 billion.

Bhattacharya added SBI was prepared for a new rule requiring higher provisions for restructured loans after April 1, describing the extra burden as "tolerable".

Indian banks have come under fire for holding on to high lending rates despite two policy rate cuts by the central bank -- a move firms say may protect bank margins, but hinders the expected economic pick up. Banks have cited weak credit demand, but also a lack of liquidity.

Bhattacharya said a cut in India's cash reserve ratio, the share of deposits which lenders must hold with the central bank, would "definitely help" banks to cut lending rates.

"We can put money which is today not earning anything, into earning assets. That cushion that we get it enables us to transmit faster," she said.

Efforts by the government of Prime Minister Narendra Modi to overhaul foreign investment have also touched the financial sector, and parliament this month approved rule changes to allow foreign partners to hold stakes of as much as 49 percent.

SBI is in talks with its life insurance joint venture partner BNP Paribas Cardif over a potential stake sale, and could also consider a listing of the unit, Bhattacharya said. The listing could take more than a year, she said.

She also dismissed any immediate plan to merge SBI's five subsidiaries, known as associate banks, which she said needed to strengthen operations.

"Obviously it will not happen during this calendar year. Whether we'll look at it next calendar year? We'll have a look."

(Editing by Edwina Gibbs; editing by Susan Thomas)