RBI project finance norms: Will absorb additional provision, says SBI chief

Provision buffer of Rs 33, 000 crore sufficient for ECL norms

State Bank of India (SBI) will be able to absorb the additional provision requirement if the Reserve Bank of India (RBI) implements the new norms on project finance as proposed, although the pricing of loans may have to be revisited, Chairman Dinesh Kumar Khara said.

Last week, in the draft norms on the project under implementation, the regulator proposed a standard asset provision requirement of 5 per cent during the under-construction period in a phased manner.

Higher provision means banks have to set aside additional capital.

“We have made some broad assessments, and based on that assessment even the incremental provision that will be required to be done, would not be any substantial amount. We will be in a position to absorb additional provisioning numbers without much disruption,” Khara said during an interaction with the media while announcing the January-March earnings.

“We will be reaching out to RBI with our views on what they have proposed,” he said.

Since RBI has proposed higher provision requirements for existing loan facilities, the pricing of such needs to be relooked at.

“Also, the fact remains if all this becomes a reality, maybe the pricing of such loans will be revisited. Perhaps they (RBI) have in mind that risk is not properly priced. Also, the fact remains if at all this becomes a reality, the pricing on loans will be revisited,” Khara said.

SBI’s project finance book is around Rs 1.5 trillion.

Last year, RBI also released a discussion paper on the expected credit loss (ECL) model for loan-loss provisioning. While RBI has not mentioned when the transition to the ECL framework will take place from the current incurred loss framework, the provision requirement of banks will also increase in the new framework.

Khara said, according to SBI’s assessment, additional provision requirements will be Rs 30,000 crore due to migration to the ECL framework. He said SBI has a provision buffer of Rs 33,000 crore.

“For ECL, our assessment was somewhat Rs 30,000 crore, to be provided over five years. Our non-NPA (non-performing asset) provisions today are at around Rs 33,000 crore,” he said.

The country’s largest lender also said the lender is open to raising equity capital in the current financial year (2024-25).

“We are quite open to raising AT1, and equity also if need be. Our ploughback is quite handsome,” indicating profit ploughed back as capital.

SBI reported a record net profit of Rs 61,077 crore for 2023-24 which was 21.6 per cent higher than the previous year’s profit.

With a capital adequacy ratio of 14.28 per cent, including common equity tier 1 capital of 10.36 per cent, Khara said the bank can support Rs 7 trillion worth of growth, which is around 20 per cent of the loan book as of March 31, 2024, Rs 37.67 trillion.