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Banks have the money, but nobody is asking for credit amid low economic activity: SBI chief

SBI chairman Rajnish Kumar was optimistic of an economic revival once the lockdown, but cautioned that several sectors would take longer to recover. Read the full exchange he had with ThePrint Editor-in-Chief Shekhar Gupta on Off The Cuff.

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New Delhi: State Bank of India chairman Rajnish Kumar expressed hope that the removal of the lockdown will revive economic activity.

Speaking to ThePrint’s Editor-in-Chief Shekhar Gupta at a digital Off the Cuff, Kumar, he said the minimal impact of Covid-19 on the rural economy, cheap crude oil prices and falling gold imports were some of the positive signs for the economy, and added that credit demand could revive after the lockdown ends.

The sectors that will take longer to revive will be restaurants, entertainment, including movie halls, and aviation.

Kumar also said estimates show that SBI, which is the country’s largest, and consequently other banks, will stabilise by next year.

Read the full interview here:

Shekhar Gupta (SG): What is the status of banking right now? I know bankers don’t want to lend, entrepreneurs don’t want to borrow.

Rajnish Kumar (RK): The second part of your statement is correct even though a lot of people don’t believe so. Fact of the matter is, today, at least for SBI we have all the money and willingness to lend but I’m not finding people who are willing to borrow. And there may be many reasons — one can be common sense. In the past few years, it was a time of over-leveraging. Optimism was such that people believed GDP growth could be 9-10 percent. The problem arises when it is not 9-10 percent and you indulge in over-leveraging then. In the past few years, corporations have been consciously deleveraging a lot. I don’t think they have the strength to over-leverage.

SG: They now know that if they cant return, they will lose their assets, which wasn’t the case in the past.

RK: The IPC has been suspended for 6 months, but that too was a game changer. The multiple growth of GDP and credit has always been a topic of debate. Whether credit expansion leads to GDP growth or GDP growth leads to demand for the credit. If we look at multiple, GDP growth was at 5-5.5 percent, the credit was around 10-11 per cent. Now, if the GDP drops to 2 per cent, a 10 per cent credit growth is not possible. If interest rates are reduced, then borrowing will expand or credit will expand. But I think when there is a problem with credit or it’s in short supply, it has a high demand. Credit expansion is dependent on the demand.

SG: Where will banks go? What can banks do to revive the borrowing cycle?

RK: When it comes to banks, there are a few things we can do internally. Wherever there is a tight policy framework, the rules must be reviewed. The delays in the credit process must be reduced. We must maintain the prudence that is there now. Whenever there has been an excess of liquidity in the system and credit is given liberally, we see a great problem. This is not the first time we are witnessing it, it also happened in 2008, when liquidity and credit expansion was at 22-25 percent and there was a wave of MPA.

SG: Where will you keep all the money you have now

RK: That’s a big problem for us and I don’t have an easy answer for that. We have reduced the rate of deposit but are still getting a lot of deposits. There can be many reasons for this: issues in mutual funds, flight to safety. But the biggest problem is that of excess deposit.

SG: If you take fixed deposits from people, at 6-7 per cent. The same money, because nobody is borrowing money from you, you place with SBI every day at just about 3.75 per cent.

RK: Whatever incremental and fixed deposit is coming is a losing deal. But the money we are getting from other channels, current accounts or saving banks, is not a losing deal. On today’s date, we are not facing the need to take a fixed deposit. But we are a big bank. We can’t say that we don’t need the people’s deposit. For senior citizens, if they put money for 5 years, we will give 30 basis points extra. In such circumstances, we can’t ignore the loyalty factor of our customers.

SG: You are the captain of the banking sector, what do you suggest to bring back the entrepreneurial spirit.

RK: Like I said, there are two things. Convenience and affordability from the lending side. While affordability has improved, and we are giving a lot of attention to the convenience factor as well. The major issue is that of corporate lending where more than one bank is involved, because the decision is not taken by just one bank and they all have their own risks. However, in my conversations with retails associations and other such forums, we have been suggesting what they can do in a time like this. In this situation, there are two possibilities — one that the loss is so high that restructuring at a higher level is required to fund it. Two, disruption in temporary cash flow for 2-3 months and because of that disruption there are problems. A big enabler of that is deferring the cash flow.

SG: Will the banks think of something by way of reviving the sentiment for those who borrowed in the past? You carry out more substantial deduction on their interest rates. Besides the fact that the government has given a 3 month moratorium. Will the banks be a little more entrepreneurial?

RK: What was 8-8.5 percent, in the past six months we have reduced it by 1.5 percent. And with the kind of scenario that is developing, interest rates may be reduced further. But in the lockdown situation, home purchases, car purchases have halted. A major growth of businesses was through these. It has completely stopped. As we exit the lockdown and economic activity will revive, credit demand will increase.

SG: Are you allocating more money to infrastructure? Gadkari has been talking about resumption in the business of highways.

RK: We have to deploy money. We make a portfolio based on the metric we follow about risk and related returns. SBI has had a big contribution to infrastructure finance and will continue to do so. If we decide to give a loan today, it takes at least a year to draw it. In the next 6 months, there will be growth only in those projects that were sanctioned earlier.

SG: How bad is the MPA situation in public sector banks, and SBI in particular?

RK: The results have not yet been published so I will answer accordingly. There are two figures — gross NPA and net NPA. We pay more attention to net than gross. If in one year I have an NPA of Rs 100 crore and in that much if I remove Rs 70 crore from my profit and make provisions there should be a Rs 30 crore recovery. Rest will be the loss which we can recover from the PNL — profit and loss. Now my only concern is the recovery of Rs 30 crore. It’s possible that the recovery can be of Rs 40 crore or Rs 20 crore based on the situation. The Rs 70 cr is provisioning not right off.

SG: When people say look at banks writing off thousands of crores to the rich but they go after farmers, how do you answer that?

RK: I’m sorry to say but the media is responsible for spreading such fake news. I’m amused at the lack of research of TV channels. I will give one example — the case of Essar steel where the banking system had a Rs 42,000 crore NPA on which we gave 100 percent provision for five years. Net NPA of the banking system is zero. We took the hit by giving a full provision in the PNL. After this we have two options — we can keep the Rs 42,000 crore above the line in the balance sheet of Rs 10 lakh crore. If we do so, the gross NPA is 4.2 percent and net NPA is zero because we gave full provision. If we take it below the line, which the public understands as a forgiven loan, but that is not the case. Now if you look at the balance sheet, both gross and net NPA will be zero and the full Rs 42,000 crore will be recovered. Public only understood that the bank wrote off the Rs 42,000 crore, but that is not true. There could have been two situations — of the Rs 42,000 crore, Lakshmi Mittal could have given us Rs 30,000 crore, then there would’ve been a genuine right off of Rs 12,000 crore. In this condition, the Rs 12,000 crore loss is a business loss, you can’t consider that a forgiven loan.

We had given Rs 44,000 crore in Bhushan Steels and had a Rs 30,000 crore recovery. To call this a forgiven loan for the borrower is a misconception. When you buy a property, say for Rs 1 crore, and you sell it, it’s not necessary that you sell it at the same price. The conditions may force you to sell it at 50 lakh, or not even that.

SG: So it is wrong to say that so much loan is being forgiven to big borrowers.

RK: If there is no lending or banking system, there will be no business. All the businesses in the country cannot be made solely on equity, taking a loan is necessary. The problem is that there is no change in the borrower’s lifestyle, which makes the common man skeptical. We give a loan for a business, and the borrower uses that for luxurious purposes instead, again there is animosity between the common man and borrower. To take a loan for a business and for it to be successful are part of banking. These are the calculated risks that we have to take. But, if the money is misused it is necessary for there to be anger. This practice must be stopped. Ultimately, the banking system must be prudent. But I think people and bankers have been given lessons and it’s safe to say that lending in the future will be clean and the profit and loss in businesses will continue.

SG: Yes Bank just declared its results yesterday. Deposits have nearly halved while a substantial part of the corporate loan book is stressed. Was investing in Yes Bank a wise decision?

RK: Whether it is a wise decision or not will be decided in the next 3-4 years. But, there was an issue of financial stability. Which is why state banks came together to take this investment decision. This decision can be profitable. When this decision was made, an estimate was made about the declared losses and the remaining will come in the March quarter. When I listened to the bank’s MD speaking, it revealed that books have been cleaned to a certain extent and there was a lot of loss in the deposit franchise. But that began restoring after 1 April. We have seen depositor confidence coming back and April figures reveal so.

SG: You have indications of depositor’s confidence coming back?

RK: Yes. The estimates of April indicate that depositors have started showing confidence in the bank. If there has been a huge loss like this, then it will take some time to be repaired completely. But we estimate that the bank in the next year will be stabilised. The loss and problems have more or less been taken care of.

SG: What is the impact of this three month moratorium on the banks? Have the banks asked for an extension of this moratorium?

RK: This is a continuous process and all kinds of solutions come from banks, industries. From time to time we have conveyed suggestions offered by Indian Bank Association.

SG: Do you think that the government should increase this in the coming three months?

RK: When this decision of three months was taken in March, that time we didn’t factor that the lockdown would go this long. Now that this lockdown has been extended for so long, this three month moratorium stands till 31 May. As soon as this lockdown ends and looking at the capability of people to pay up, I think RBI will discuss this sure. The decision will be taken on the basis of the limits of economy and financial system. As far as the moratorium on banks is concerned, the moratorium was in instalments. All these instalments ended up being backhanded. To that extent, there will be no pressure suddenly. From June onwards, if we assume that moratorium is discontinued, then people will have to pay up for cases in June. The loan for these three months will have to be paid in June. But, in case of State Bank, 15 to 20% corporates and individuals have availed this moratorium.

SG: State Bank is the biggest bank. Can you help the poor by giving them additional interest, say on Jan Dhan accounts holding less than one lakh rupees.

RK: If this would create a big difference, then definitely I will think about this. But, the average balance in these accounts is not more than Rs 2,500 or Rs 3,000. That’s why, if the interest is increased then the bank will be impacted more. But people who get the interest, he’ll not see a benefit.

SG: Any possibility of increasing interest level on fixed deposits, you’re actually going to decrease them.

RK: But interest rate scenario is coming down. Even on the deposit. We just do intermediation whatever money is lent we get and we pass it on. We don’t have a choice. Even then, looking at the circumstances and senior citizens, we recognised a great loyalty to the State bank and we took this decision. We will not reduce interest rate on the deposit for 3 year. In case of deposit for 5 years, we used to give senior citizens can extra bps of 50 points, but now we will give 80 bps extra. This is only for senior citizens on five years fixed deposit. This is not a business consideration, it is gratitude for our senior citizens who have supported State bank.

SG: Under today’s circumstances, what are the positive factors you see in today’s economy?

RK: There are many positive factors. I am very happy that this question was raised because everyone is pessimistic right now. On the basis of feedback from the ground, in case of agriculture the crop is good. It has been cut so far. Farmers don’t have to sell wheat to government agencies, this is the feedback I have received. There has only been a difference of Rs 100. Atta mills and flour mills they are taking the yield from farmers. In comparison to urban economy, the rural economy hasn’t be impacted that much by coronavirus. Sales of paint have gone up and demand for cement is also increasing. This is only for rural economy. When it comes to crude oil, its prices have reduced so much that India will be benefited. Forex reserves haven’t been negatively impacted. This is a positive sign.

SG: Are mudra loans in good health? Or will we see a rise in NPA in mudra loans? If mudra loans start going wrong, they will be too small to fail. If someone was selling gobi on a cart and borrows Rs 20,000 and is not able to pay back, you won’t confiscate the cart.

RK: Overall portfolio of Mudra loan is not that big in outstanding terms. Turnover figures are good, in case of Mudra loan, NPA has increased. In case of small loans, like Kisan credit card, it is for productive purpose, but this money usually goes into consumption needs. Self help groups model should be encouraged I feel. In case of mudra loans, digital channels and strong ground built collection machinery which is in touch with borrowers is very important.

SG: How much of your mudra loan portfolio is NPA right now?

RK: It is around 25% right now.

SG: That’s a lot. How much is the total mudra long portfolio?

RK: Over 27,000 crore. This is the cost of our social banking.

SG: More and more people who are buying these are using it for consumption not for productive purposes.

RK: This is natural, we can’t blame them also. Their income level is so low, that we can’t blame them. Their priorities change.

SG: To spur manufacturing in India, what fiscal stimulus will be enough? Which sectors do you see recovering first in times of coronavirus?

RK: Obviously, pharmaceutical industry will be one of them. Also, the health care sector. Healthcare sector is down because hospitals are shut right now. But, there are two things that can happen. One of them can be that global supply chains and the possibility of bringing them from China. Second, cement, steel, power and core sectors, their demand can increase steadily. But for this to happen, lockdown has to open completely.

SG: If you were to give advise on the lockdown, would you be conservative and say extend it? Or would you say, it is time to learn to live with the virus?

RK: In my personal view, keeping the lockdown for so long, we have been able to contain the infection. Now we can’t take a step that will harm the advantage that we have already. But, the situation is such that basic infrastructure has to be created for treating Covid. Other than that, what is the recovery rate and mortality rate? This data has to analysed and the strategy of containment zones must be kept. All this red, green, orange zones is something we can get rid of. In order to revive economic activity, the end points (consumers), that has to be started. It is important to boost demand.

SG: Why are banks like Kotak making life tougher for borrowers by making it difficult to increase credit lines and increasing interest rates to existing customers?

RK: Not appropriate for me to comment on business strategies of other banks. But what we have to realise is that in general, the approach of private sector and enterprise, there is some difference. People have to understand that the first consideration of a private sector enterprise it is to maximise return for equity holder.

SG: Left to itself, would SBI be interested in investing into Yes Bank? Does it make sense purely as a business decision?

RK: This question has been answered already, must be raised three years later.

SG: But do you think it was a good call in terms of your business instinct?

RK: If it wasn’t for a bank of the size of Yes Bank, the consideration on whether it was purely a commercial decision. It wasn’t a decision like that. In the larger interest of the stability of the financial system and being the lead bank in the country, this was a better way of saving a bank, keep its franchises strong and ensure stability of system. If we have to keep in mind, that RBI has the power to merge under banking regulations act.

SG: There are some mutual defects in our system among defaulters, say SR. There’s a struggling group which is Reliance ADG group, Vodafone etc, which worries you more?

RK: It is not prudent to make comment again. Unless wherever default is there, it is known to the market, it is reported. In case of SR, there were no complaints on quality of assets.

SG: Will you tell depositors of Yes Bank that their deposits are safe now?

RK: I think that it will be like. Having taken a call like this, we have invested 48%, we have come out of the stage, people shouldn’t worry.

SG: Other company where you put up quite a bit of your effort and emotion was Jet Airways, do you think that is a completely lost cause?

RK: Unfortunately, yes. In any case it was hard to find a buyer. Anyway in light of the current circumstances, even if there was a little ray of hope, even that is gone.

SG: But was that a franchise that could have been saved?

RK: In my view, yes. Which is why so much effort was made.

SG: What could have been done that we did not do?

RK: We did everything from the banking side. There are certain laws and regulations in the country, the investment in Jet Airways couldn’t happen.

SG: If the difference between Reserve bank’s repo rate and the EPF interest rate is 5bps, how can it be sustainable? How long can it last?

RK: It is very difficult. In case of EPF, lots of savings of workers is kept. This is also an issue, they depend on these savings. In case of this, economic consideration is lesser, social consideration is more. Otherwise, such high rate of interest is not sustainable.

SG: Do you think government should be now moderating it a little bit? Keeping it in consonance with rest of the country?

RK: This is the government’s call, not mine.

SG: Say a blue chip corporate like Reliance and HDFC can borrow much cheaper than many of the states in India. Kerala is borrowing at 8 and a half and 9 % now. That is also unsustainable?

RK: If we only look at it purely commercially, and remove the angle of sovereignty, then rate of interest will be charged on the basis of risk reward matrix.

SG: So its not a contradiction, it reflects a market reality?

RK: Yes.

SG: I think it is a good thing that markets can even teach communists market reality. Do you have a closing message to people?

RK: Good days and bad days don’t stay for very long. This phase will also leave, but if we expect that this will go tomorrow, then it is not so. So, we also have to be ready. And the change in social and consumer behaviour has to be watched and observed. We don’t know how the consumer behaviour is going to change after the lockdown. Even if we take an example of World War, Europe and Japan were devastated. But, then the world saw unparalleled prosperity. At the same time, we will have to keep in mind, does this earth have the capacity to support the prosperity of this giant a population. We have to find new models. Today, the mankind is taking nature for granted, then it will somewhere balance out.

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  1. Sir
    I am sorry and regret to inform you that your statement is not correct 100% . I am ready to take loan from SBI. I had already applied for LAP for 1.5 Cr. They’re asking unnecessary questions and documentation for the same . My son is Marine engineer and his salary is about 7 lakhs per month. He will me in job for 8 months annually. He also have approximately 2 ans half grounds in Chennai city limits with the rental income of 1 lakhs per month. We provided all the so for loan and he was denaied the loan stating that pro property is semi comercial. In that case who will come forward to take loan from the bank. Almost I had approached the bank for more than two months finally my proposal was turned town. Banker are believed the customer. They are busy in processing the papers only to the cheater.

  2. Wrong in recent many people applied online loan PAPL and almost all were refused with mesaage please check next month it is only a wrong statement sbi will give loans to willful defaulters

  3. Banks have the money and do want to lend. But they want to lend large sums of crores to few customers, instead of small sums to large number of customers. In the former, it becomes easy to monitor and keep track of the few accounts, while the reverse is the case with the latter. However in the present scenario lending to MSME enterprises in large numbers will kick start the economy faster. So the banks must shed their laziness and enhance lending multifold, to small businesses and MSME enterprises.

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