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NBFCs must be regulated at par with banks: Rajnish Kumar, SBI


NBFCs were filling the gap in absence of lending by PSUs. We need to come back and that is what we are doing and this is the

opportunity to lend fresh and buy back the portfolios from NBFCs, Rajnish Kumar, Chairman, SBI, tells Supriya Shrinate of ET Now in an exclusive interview.

Edited excerpts:

What is your view on the liquidity situation?


The liquidity with the mutual funds definitely needs an improvement because the reverse flow which has started with the corporates withdrawing, that money needs to come back or some liquidity support has to come from Reserve Bank of India or government. That may help the sector give the confidence and all these rumour mongering can be set to rest.

Are NBFCs and HFCs going to cede space for banks like yourselves?


Some balancing of the portfolios is bound to happen.

How much?


That is very difficult to predict. What happened was a vacuum was created by the absence of lending by the public sector banks and that was filled by NBFCs to a large extent rather than private sector banks. We need to come back and that is what we are precisely doing and that is the opportunity to lend fresh and buy back the portfolios from NBFCs also.

As India’s largest banker, there is a lot of fear in the market still. There seems to be an asset-liability mismatch as far as NBFCs are concerned. This is a big asset bubble waiting to burst. How wide and deep are the risks with people having referred to accounting frauds and things like that?


One is about NBFCs. It is very wide. In NBFCs, you include even HDFC, LIC Housing Finance, you include PNB Housing Finance, endless. You also include power finance, REC, HUDCO. Everybody comes under NBFCs. The problem is not with the sector as a whole. Second, there is not much of an issue with the underlying assets and recovery. There may be an exception.

Does this mean a more nuanced approach because there are NBFCs that accept deposit and they need to be in a different sort of regulation versus those who do not. What is your personal view on this?


NBFCs play a very significant role and quite a few of them they have done well in the SME space and the affordable housing space, in overall meeting the credit requirements. There should not be any regulatory arbitrage in my view. If banks are strongly rerated, so is the need for a strong regulation as far NBFCs are concerned. Any NBFC which has a problem, can create a systematic risk. I strongly feel that NBFCs need to be regulated at par with how a bank would be regulated.

At one level don’t you think that IL&FS has been given a very long rope. Banks lends to infrastructure and when that fails, you are culpable. As far as IL&FS kind of company is concerned, NHAI is being made to pay. From a banking point of view, is that a little bit of a step-motherly treatment?


No I do not agree with your analysis, honestly, because if you look at the project funding, if IL&FS is paying for any of the projects, then they would be classified as NPAs. So there is no special dispensation. I have financed 13-14 of them and if anyone is not performing as part of the project funding, there will be default and the account will be put under SMA-0, 1, 2 and whatever is the asset class.

Now the question is how we resolve the resolution. The approach to resolution of IL&FS cannot be on safety. I strongly believe that whatever the government did was what was needed to be done and now with the new board in place, there is a much more confidence in the market itself. As far as resolution is concerned, the board has to be prepare a resolution plan and then when resolution plan is ready, then people will act on that resolution.

At the IMF summit, former RBI governor YV Reddy said RBI should be more worried about the risk control potential of large institutions like LIC, HDFC and SBI. Do you agree with this and how would you defend your position in that sense?


We bought this equity way back in mid 90s and we have 6%, of course LIC has 25%. Forget about IL&FS. In any board, there are independent directors, whole-time directors and nominee directors and in the board the proposals come for discussion but now if there were certain questions raised on the proposals, the nominee directors would have taken note of that. Whether everything is public or not is a different matter, but the responsibility of the board is the same which is for any other company where there are problems.

So you do believe there are risk control mechanism that needs to be perhaps reviewed of banks like yourselves just yet?


No. I invest in an account and so I have an investment policy. At that stage, we control. But for any board member in any company, what happens there on and this is not a question about IL&FS alone. This is a question which can be asked for any board you are present in and you cannot treat IL&FS board differently.

Whatever is the responsibility of any board towards corporate governance or agenda items, whether the right questions were asked or not, that will be all subject matter of record. But in any company and I am not defending the IL&FS position, the responsibility of the management and the whole-time directors is definitely much more…

Is the worst of NPA behind us? We keep hearing that the worst is behind us and then something else comes up. How many more painful quarters of provisioning till we say things will begin softening from here?

My version is that I will stop saying that worst is over.

But how many more quarters of painful provisioning?


What I believe is and I am telling you more from State Bank perspective is I have a better idea about State Bank because each bank’s lending practices may defer. The NPA recognition has happened last year. March 18 was the peak and after that we have started seeing the declining trend in the new NPA formation. The provision coverage ratio in last one year, June 18 to June 17, all banks have increased their provision coverage ratio. At State Bank of India, we have increased provision coverage ratio by 1100 bps.

SBI says it expects Rs 30,000 crore this fiscal from the IBC process. Two questions there, are you on track or could that number actually be higher given that there is a lot of interest in some of resolutions that are on the table?


It is going to be differentiated through the IBC process, through a transparent price discovery and through a court adjudicated process. Even if it is not a court adjudicated, sale of assets or whatever is the security available, whatever is the cash flows or the potential cash flow available, you recover the amount. When you have exhausted all your recoveries options, whatever you were to recovery you have recovered and whatever is the remaining amount you are unable to recover or there is no possible way of recovery, then you remove it. So that is where this distinction and it is very important.

But that Rs 30,000 crore figure will likely go up this fiscal?


It should go up but Rs 30,000 crore is still a very reasonable estimate given the accounts where the resolution is in sight. It is like you have a very ripe fruit but you cannot eat it. We are waiting for that opportunity.

You have gone on record saying SBI is no longer the right candidate for looking at any bank consolidation. Do you still stick by that?


I still do because merging six banks is not a joke and I will see the benefit of the merger now coming to the merged entity which includes five associates plus Bharatiya Mahila Bank and SBI. Time and again, I have said that in terms of size also we are domestically and systematically an important bank and there should not be too much concentration of power in State Bank of India.

You are talking very contrary to concentration of power. Is this whole effort to merge banks, a weak bank, a stable bank, a small bank and a stable bank, the right way to go forward? This is not a decision coming from the banks’ boards. Is this the way forward?


This was the recommendation made in 1992. So it has been almost 26 years. Somewhere you have to make some beginning because 21 public sector banks are just too many. We need a couple of strong large public sector banks because of the economic growth as well as the social banking objectives in this country, but do we really need 21? If we do not need 21, then somewhere, the beginning has to be made.

It is not coming from the banks themselves then?


Yes, the government also is the majority shareholder.





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