If any bank is growing advances, it may be lending to low-rated firms
Nov 30 2012
Interview: Pratip Chaudhuri, CMD, State Bank of India
Do you see some signs of pick up in credit offtake?
There is some pickup in credit, but largely in the retail segment in the home and car loans, but no demand from companies. The large corporate and mid-corporate book is growing only at the rate of 5 to 6 per cent. And any bank is growing then there is demand only from the mid-corporate and the lowly rated companies, because even now CPs are happening at 8.5 and 9 per cent. So any company, which is good enough to issue a CP will not use the bank credit.
But some banks say their advances are growing?
If any bank is growing its advances, then chances are that lower rated companies are accessing this credit. The average bank base rate is 10.25 to 10.5, ours is 9.75 per cent, one of the lowest in the market but higher than the CP rates. So companies are assessing the debt market for working capital requirements. The CP rates are in the range of 8.5 per cent to 9 per cent for the three months to a year tenure bonds.
How is that banks are investing in the CP market, but not giving credit?
Companies are not asking for credit. But, the same companies who are assessing the corporate debt market are not asking for credit. The same companies take for example, Hindalco or Reliance Industries when they have an option of using CPs at lower rates why will they use bank credit, except there is a very short term need for 10 or 15 days, because CP once it is issued the minimum tenor is three months.
Asset quality. Is too much being made of it or is there a real danger lurking for the banking system?
No I think there should be a healthy debate on the asset quality of banks. But, as far as SBI is concerned our net NPA and restructured assets are 6 per cent, which is one of the lowest among PSU banks.
Bad loans today are the result of the credit decisions taken a few years back. Do you think those decisions are to be blame now?
At that time the outlook was good. Hotel that time everyone thought would have a good occupancy, now hotel are not having good occupancy, airlines everyone thought would have good traffic, but they are not having traffic. There is a slowdown in demand in many sectors, including steel so it is an issue of projections. Do we blame the people for not predicting the euro crisis. Similarly if there slow down in another part of the world that part the good will come and hit India.
Did companies overleveraged themselves expecting the economy to grow at a much faster pace?
Not particularly. All banks have general caps of leveraging at 1:3. The companies are not overleveraged, but the Ebita margins that they had expected are far less. Second is the output. Suppose you put up a project expecting to sell goods worth Rs 500 crore, and the sales are only at Rs 300 crore, the output gap is certain to hit companies.
RBI views restructuring very sceptical. They fear banks may be window dressing their books?
That is not the right stand. RBI has the occasion to check the accounts of the banks and classify an account as standard or substandard in their annual inspection of banks. And these RBI audits should bring out the cases where the accounts are not classified as NPAs. All the loan accounts above Rs 5 crore have to undergo a limited audit by the auditors who are the eyes and earns of the RBI. RBI has all the data it is easy for them cross check them.
What is your realistic expectation bank credit?
We will grow at 15 to 18 per cent. We have grown about 7 per cent in seven months and 18 per cent in 12 months is possible, and now the retail momentum has picked up. It is a safe credit as the loan to value ratio is less than 70 per cent. Home loans are growing at the rate of 30 per cent year-on-year and we are seeing a lot of takeovers about Rs 400 crore worth of loans taking over in a month. In auto also, we are the now the market leaders growing at the rate of 20 to 22 per cent over the previous year.