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Provision coverage ratio of banks has improved to more than 70%: Dinesh Kumar Khara

From Sept beginning till early Oct, credit offtake has been up significantly

ET Now|
Nov 25, 2019, 11.39 AM IST
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The banking system is strong enough to face the economic challenges of the ecosystem. The banks will be in a position to support the growth in the economy to a very greater extent, says Dinesh Kumar Khara, MD, SBI. Excerpts from an interview with ETNOW.

SBI is looking at about Rs 13,000 crore from Essar and the SBI Cards IPO will yield another Rs 9,000 crore. With Rs 22,000-23,000 crore being available, what do you plan to do with it?
The monetisation of our stake in SBI Credit Card is part of the long-term plans. As far as the recovery proceeds from Essar are concerned, we have made 100% provision for this particular asset. Naturally, we will be in a position to write back those provisions.

Even there, we will have some capital gains coming through. All said and done, being a going concern with growth ambitions, all the money will be available for deployment for other growth options for the bank and also for further lending over the years.

How much more money will you bag from Essar and how much more by way of recoveries can investors price into SBI this year? There has been a nudge within the system for quicker resolutions?
We expect somewhere around Rs 12,000 crore plus to be recovered in case of Essar and as far as the other resolutions are concerned, we are quite hopeful. The Essar judgement has very clearly laid out the insolvency law in the country and to that extent, many more such cases which are pending before the insolvency codes will get resolved. Perhaps all these cases which have been referred to IBBI for quite some time will get to see faster resolution.

Where exactly do things stand in case of DHFL as of now?
As far as DHFL is concerned, the recent enactment has come through at the instruction of the regulators. The systemically important NBFCs can be referred to the insolvency process. An administrator has been appointed by RBI very recently and naturally it will also go through the NCLT process for resolution of the impaired assets.

How is demand looking at the moment? What are you picking up from corporates? Has there been any movement in the overall scenario?
I would like to say that in the first 10 fortnights, we had witnessed growth of about Rs 35,000 crore in the banking system. In the last five fortnights -- say from September beginning till the early part of October -- we have seen a significant growth in the credit offtake from the system. It was more than Rs 1,50,000 crore. That is a very clear reflection that when we started the year, we were not witnessing a strong credit demand but in the recent past, we have got to see some better credit demand.

I would say that these are the green shoots which we have seen in the recent past. We feel going forward, there would be some further growth in credit which should be witnessed. This is what I feel.

What about retail as a segment? Is there stress still in there?
We do not see much of a stress in retail assets. Rather, we have seen very decent growth in retail assets in recent past. I would say that our retail engine is doing very well and we have witnessed a consistent growth in retail assets.

Has SBI been receiving any proposals for a large private or listed capex? Are we seeing any movement there?
I would say that it is a process and naturally when the capacity utilisation improves, there is a possibility of the corporates taking a call for fresh investments. May be, the recent green shoots which we are seeing will encourage the corporates to come forward with their proposals.

There is a lot of excitement in the markets ever since the Essar Steel verdict came in favour of the lenders. Do you feel that PSUs will continue to remain in focus on account of recoveries or would you say there are other triggers as well and that’s why there is excitement in the stock markets?
Well, of course, practically all the PSUs with exposure in Essar Steel had provided for that particular asset. Now the other aspect is that since there is very clear-cut jurisprudence which is available for the insolvency law, it has actually brought the confidence back into the system. Perhaps that is the reason why we get to see a better traction as far as the PSU stocks are concerned.

Any trends that you can take us through with regards to SMEs as well? What are you witnessing on ground?
SME is something which is engaging the attention of practically all the public sector lenders and we are quite mindful that perhaps there is room for improvement in the processes. For instance, we acknowledge that the balance sheet financing may not be the only way for supporting SMEs. We are also looking at financing them based on their cash flow basis.

We are also evaluating that if at all we can use some of the data available in the ecosystem -- through GST returns etc -- maybe we can make SME lending easier. So all that process is on and going forward, we will have much a faster delivery for the SEMs though we have seen significant improvement in the recent past. There is room for further improvement, while we are already making efforts to make the credit available to SMEs at the earliest.

If I look at what has happened to the real estate sector, the problems are not getting sorted out. The real estate interplays are getting hit. Zee lost because of its exposure to real estate and infra. The Karvy problem has largely originated because they took out money and invested in real estate sector. Would we keep on seeing these periodic problems and would that continue to drag the system down?
If you look at the structural reforms which have been bought into the real estate sector particularly RERA, these are the kind of things which are essentially meant for building up the confidence of the ultimate buyer in the real estate side. The other aspect relates to some of the unfinished projects and for that, the government had recently announced a real estate fund. With the help of that fund, at least those projects which are stuck for want of last mile funding will get the support and will ease out the pain in the system.

It is going to be a process. The problem has got compounded over a period of time and it will get eased out with the passage of time. Some right steps are being taken which will eventually help in resolving the pain in the sector also.

Where is good news for the banking sector? Where do you think we are in for an incremental change? Would 2020 be dramatically better than 2018 and 2019?
If you look at the provision coverage of the banks, it has improved significantly. For the system as a whole, the provision coverage ratio is more than 70%. If you look at the cases which have been settled in the NCLT, the average recovery is about 43% which means that the LGD for the system is at about 57%.

The provision coverage ratio for the banking system is at about 70% plus. When it comes to providing for the impaired assets, that is behind us. I would say that this augurs very well for the banking system and going forward, it is a very clear reflection that the banking system is strong enough to face the economic challenges of the ecosystem. The banks will be in a position to support the growth in the economy to a very greater extent.

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