A slowing economy will increase pressure on banks as larger number of loans turn non-performing, Diwakar Gupta, MD and CFO of State Bank of India, the country’s largest bank, said.
Gupta said that lower demand, lower sales and lower margins experienced by the industry will contribute to slippages in asset quality. The continuing uncertainties around certain government policies such as coal linkages, telecom, aviation and subsidies will also affect the banking system, he said.
Stressed assets
SBI’s gross non-performing assets (NPAs) rose from Rs 27,768 crore or 3.5 per cent of the loan book a year ago to Rs 47,156 crore or 5 per cent of the loan book in June. The bank’s restructured loans accounted for Rs 29,352 crore or 3.1 per cent of the outstanding advances as of June. The total stressed assets ratio (NPAs plus restructured assets) was at 8 per cent.
Asked if the stressed assets ratio would hit double digits, Gupta said he didn’t think so. “For us restructured assets have been very reasonable. That could be a charitable explanation for high NPAs. We are quicker to recognise NPAs and therefore we bring it upfront rather than have a restructured book. The restructured book in the pipeline today is about Rs 5,000 crore. How big that book will become is anybody’s guess. If the economy worsens then definitely the book will become bigger,” he said.
Gupta drew comfort from the fact that slippages in the restructured loan accounts had only been around 17 per cent. He said, “This means 83 per cent have still got salvaged. Therefore, I will not be too worried. Even our stressed asset proportion is less than industry average. I don’t think it will go to double digits.”
Gupta however pointed out that with 50,000 MW of power capacity on the anvil, if something negative were to happen in the power sector, many accounts would have to be restructured. The banking industry alone would be looking at a debt of about Rs 1.5 lakh crore on this count, he cautioned.
NPAs vs loan restructuring
When asked if it was better to take a direct hit by recognising NPAs straight away than restructuring loans and see it turn bad subsequently, Gupta said the bank did not look at the question from the balance-sheet angle. He said, “Balance sheet is only a product of what happens. The question we pose is, whether it is viable to restructure or not.
One, is the sector’s inherent viability intact? Two, is the promoter competent and honest? Then the best course is to restructure. If you straight away make it an NPA, on larger projects especially, you will never know what kind of cross-guarantees/ cross-defaults that will trigger. It will be harder for this guy to raise further money because he is an NPA. If you are convinced that you must help him survive, why make life harder for him? That is the broad thrust of restructuring.”