The alarming increase in bad loans from infrastructure was partly responsible for restructuring of bank loanks. B Sriram, Managing Director, State Bank of Bikaner & Jaipur, which saw a fall in its profits in the quarter ending December, tells Rahul Kamat that he expects more loan restructuring in the future.
Is there a need for infrastructure leading to be redefined in terms of exposure limits and development lending, especially for projects other than PPP?
Lending to infrastructure is stranded due to banks' overall size. There are two aspects to this: How much of a bank's cash book will be exposed to infrastructure? How much of the liability will be able to support long term, and long extension periods?
One cannot borrow funds on short term and lend it to infrastructure sector. Within the above two constrains mentioned, whatever happening today is a decent mechanism. For further lending, more than the banks, I would say that the corporate bond market needs to be widened. One can get more money from those revenues and deploy in infrastructure. That is another area the government is working on and it's a very important aspect for infrastructure development.
Private players worry that they do not getting funds secured for financial closure.
It can be banks to some extent, to the extent that their balance sheets permit. If my balance sheet size, say X, I cannot go beyond a certain percentage of that X. Beyond that, if the infrastructure projects require funding of a larger volume, they will have to look at different avenues for that and one of the options is corporate bond market where you can get the required funds.
Many experts increasingly believe that commercial banks such as yours must be relieved of infrastructure lending to a large extent and that the government must actively pursue longer tenure options. What is your view?
I believe that, within the exposure limits, we [PSU banks] are quite different, because skill levels of appraising infrastructure projects is still a cause of concern in most of the banks. Some of the other lenders like IIFCL still develop that capability. To that extent, most of the pressures and official lending have to come from the banks. Similarly, working capital lending will continue to be with the banks. I think it has to be mix of banks and other agencies. All these factors add their weight so that on a whole, the lending does not suffer.
How do you view the proposed bank mergers in terms of corporate lending? What are the implications you see?
When new banks come up, there will be a healthy competition and there is more talent in the banking industry as it grows. More people will enter banking, more products will be brought out through innovative methods. Above all, with more banks and branches and more reach the whole country will be covered. So, I don't think, to my mind there has to be a healthy mix for a number of banks as well as about big banks. We can't curtail the number of banks, at the same time we should have a mechanism by which there are big banks that support bigger growth.
It may cut down the edge that the PSU banks enjoy, though...
I don't think it will curtail it. As I said, PSUs are also growing at a brisk pace. New banks are always welcome. Earlier also, such banks were added and I don't think it has impacted the PSUs in a big way.
Tell us about SBBJ's lending strategy for infrastructure.
Our lending to infrastructure and construction has grown from 14 per cent to 19 per cent during April-December 2013 on a quarter-on-quarter (q-o-q) basis. As of now, our total exposure across all sector is Rs 76,539 crore, of which C&I accounts for 58.9 per cent, which was down by one per cent from March 2013. We feel that it is an adequate exposure to the sector. As the business grows, it is expected that the exposure towards infrastructure sector will increase from the current level.
Is it due to the increase in NPA level in the infrastructure?
No, it is not due to the increase in the non performing assets (NPAs). Basically, each bank has its own exposure limits to certain sectors, and we tend to be within that range, because we need to hedge our exposure across various segments. So to that extend, we feel that, about 18 per cent lending on a q-o-q basis to construction and infrastructure sector is a decent contribution.
How much will be in pipeline for the next quarter in infrastructure?
As of today, we don't have any proposals in hand for infrastructure sector. There are proposals that have already been sanctioned. There are various stages of disbursement and most of it has been disbursed, about 70 per cent of the exposure that we have taken into account has been disbursed. But there are certain governance, non-stipulation that the company needs to do before it comes for the next disbursal, depending on that it [disbursement] will grow.
SBBJ's NPA level for infrastructure was around 10 per cent and for iron and steel it is around 7 per cent-aggregating to fairly high bad debt. You have also seen a decline in profits last quarter. What are the reasons?
Our NPA is about Rs 431 crore which is a not a cause of worry, as other banks have more than us.
In the iron and steel sector, the bad loans have increased to Rs 188 crore from Rs 119 crore. The gross NPAs of the bank rose to 3.97 per cent from 3.13 per cent in the December quarter of 2012-13 fiscal. Its net NPAs also rose to 2.44 per cent from 1.88 per cent in the same quarter of 2012-13. However, like any other bank, we have intention to make our NPA level to zero. On an average, to get Rs 50 crore of NPA in agriculture, it requires at least 5,000 accounts, whereas in project finance, a single project can become a headache for a bank with rising NPAs on it.
Solar energy is emerging as a government priority in Rajasthan. As a Rajasthan-based bank, how has SBBJ responded to lending this sector?
We have a sub-limit for the renewable energy sources which is about 4 per cent of the total exposure that we have for power, out of earmark for renewable energy. It doesn't mean that we have to do only 4 per cent, it can go up too but depending on the projects come, whether it is solar or any other renewable energy, we examine it and lend to it.
RBI has recently announced that lending to Ultra Mega Power Plants (UMPPs) will be treated as secured loans. While this is good news for the power sector, will all power generation companies considered for secured loans? Does this present a special problem in ensuring returns?
The RBI has made us think and start lending to these projects on a different level altogether. Over a period of time, all these measures undertaken by the RBI will tweak the economy in the future. They start with something and then build up on that, which is a good measure. However, as SBBJ, an entity associated with the State Bank of India, don't have the level of capacity needed to lend to mega projects. Only SBI can do so. We will only be a part of certain consortium, if at all there is lending. If there is proposal from a UMPP, we will take a small stake.
How about SBBJ's plans on restructuring some of the assets of ailing projects in power (especially state-owned distribution companies) and infrastructure? How much has been restructured so far?
We have restructured assets worth Rs 3,200 crore until December 2013, taking into account sectors like power, infrastructure and iron and steel. The major chunk of restructuring assets accounted by power sector-around Rs 1,732 crore. This is mainly because of the verdict on restructuring state discoms. I think there will be a second [round of] restructuring where the government is considering giving bonds. Once it is finalised, we will be able to go forward in that direction.
You have an exposure of more than Rs 2,000 crore to iron and steel sector. Have mining bans and production problems in related industries posed a problem in repayment?
Iron and steel is a major ingredient of infrastructure sector. This is due to a factor of lows and highs of the economic activity that goes on. As and when the economy builds up, iron and steel will grow. I don't think we can live without production of iron and steel and the manufacturing capacities need to be continued.
Do you feel that we can achieve the target envisaged in 2008 which was around 200 mt of production, even if government continues scrapping projects?
Some projects will continue to get scrapped. However, you have not taken into account the project expansion plans of private and public steel entities. These players are going ahead with their plans, so one should be optimistic about the sector.
With a prominent quantum of lending to the iron and steel sector, State Bank of Bikaner & Jaipur (SSBJ), the largest subsidiary of SBI, posted 29.3 per cent decline in net profit at Rs 151.97 crore in the third quarter ended December 2013, due to rise in provisioning. The bank had a net profit of Rs 215.11 crore in the October-December quarter of 2012-13.