The State Bank of India and its associates and subsidiaries will require around Rs 1 lakh crore of capital over the next five years to meet Basel III norms (in addition to retained earnings).
Diwakar Gupta, Managing Director and Chief Financial Officer of SBI, told Business Line this was based on a 20 per cent growth rate, and a return on equity of between 18 and 20 per cent. He conceded that the estimate could vary since growth rates during the last year as well as current year are lower.
The RBI estimates that Indian banks would need about Rs 5 lakh crore in the next five years to get ready for Basel-III norms that will be effective from 2018. The norms, developed in the backdrop of the global crisis in 2008, impose higher capital prescriptions on banks to cater to various risks.
Asked about the capital that the bank would receive from the government in the current year, Gupta said, “The number being bandied about in the press is closer to Rs 4,000 crore. We are reasonably comfortable with capital. Rs 4,000 crore will see that we don’t breach anything.”
SBI received Rs 7,900 crore infusion from the government last fiscal. He said, “We don’t need further capital under Basel III all the way up to 2015. Counter-cyclical buffer introduction may require capital beyond 2015. The extra 2.5 per cent will come up in 4 tranches and the fiscal 2015 may require a little capital.”
Capital conservation
Gupta also said that the bank would continue with its capital conservation strategy (routing SME, export credit through guarantee schemes thereby reducing the credit risk on such assets and also lowering the capital requirement on the loans). The measures had contributed to a 62 basis point rise in the tier-1 ratio of capital last fiscal (one basis point is one-hundredth of a percentage point). SBI had a capital adequacy ratio of 13.8 as of June with tier-1 ratio at 9.8 per cent.
He added, “We will try a couple of other levers, but by and large we will improve the integrity around our data and around our ratings better. We clawed back 91 basis points totally last time. Hopefully this year, we will do another 25- 30 basis points based on the same parameters.”
Rating agencies
Asked if the improvement in capital ratio would warrant a ratings upgrade by rating agencies, Gupta said, “It is very hard to say. Our stock is taking a beating. In the short term, markets reflect the mood more than the basics and I think that is the case for rating as well.
Asset quality is a problem for all banks and therefore the rating agencies are well within their rights to say that there is enough stress to warrant a ratings revision. But another big item that they said affected the ratings was the inability of State Bank to raise capital at will. Now this has not changed since 1955. Why suddenly that should become an important factor while re-considering a rating? I think it is more a factor of perception than fact. We will, of course, ask the rating agencies to review our performance which is quite strong.”
Gupta said that SBI was delivering the second largest corporate profit in the country and was the largest tax payer. “That is something the rating agency should also look at,” he added.