What are your expectations from 2019? Would problem areas ease a bit?
Well, of course. As far as 2019 is concerned, it is a year full of hope and towards the latter half of 2018, we started seeing NPA issues approaching resolution and that is a very positive sign. As far as NPAs are concerned, many of the borrowers have started coming forward offering resolutions much before the accounts are turning NPAs.
Partly, it is also on account of the February 12th circular wherein the banks are required to start monitoring from SMA zero level and it comes under the radar as far as the stressed assets are concerned. Naturally, on the part of borrowers there is an attempt to ensure that they are in a position to manage their cash flows better and avoid any kind of a default situation.
I would say that the behaviour on the part of the borrower has improved significantly and the pace of resolution which was seen towards the latter half of 2018, is expected to get further accelerated in 2019. It will augur very well for the public sector banks in general and for State Bank in particular.
Experts believe that stressed asset recognition cycle is nearing the end. Do you think that 2019 could be an inflection point because already the figure of one Rs 1 lakh crore recovery from IBC is being talked about in 2019?
We are hoping for that and I would say that whatever resolutions have gone through the IBC last year, the resolution percentage is almost as high as 46%. That is a very positive sign and if you look at the system level provisioning also, to a greater extent, public sector banks have insulated themselves by providing adequately for all the NPAs which have been referred to the IBC.
Apart from that, we are also hoping that in the current year, Shashakt, which is actually a resolution platform outside IBC is also expected to be activated in 2019. I am sure that some of the assets can be resolved even outside the IBC process as well with the help of Shashakt in 2019.
With the government announcing a recapitalisation for the banking sector, could we finally see some spurt in credit growth?
The second half of 2018 onwards, we are witnessing an increase in the credit growth as far as State Bank of India is concerned. Even at the system level also, the credit growth is higher than that of deposit growth. In case of State Bank of India, there is about 14% credit growth that we have seen.
As far as the deposit growth is concerned, it is somewhere around 7%-8%. I would say we expect a similar kind of a growth trajectory in 2019 as well. The sectors which have witnessed the growth include infrastructure like the road sector in particular and we are also seeing some kind of a growth in the cement sector. Apart from that, NBFCs and the services sector also have witnessed a growth but yes, NBFCs have gone through a tough phase in 2018 and naturally the banks have become very particular in terms of ensuring the quality of lending.
They are very careful in terms of selecting the risk. But nevertheless, the good quality NBFCs are in a position to raise money from the banking sector.
Reports are suggesting that the process to appoint merchant bankers for a Rs 20000 crore QIP have already been initiated by SBI.
Yes, this is more like an enabling provision which has been put in place and we will be watchful in terms of the market conditions and also if we continue to see the growth trajectory because as of now, we are quite comfortable in terms of our capital adequacy but if we continue to see the growth trajectory, going forward we will be approaching the capital market also and raise the money from the capital market.
How would you see lending and deposit rates moving in 2019? Could 2019 finally be the year of net interest margin improvement?
Considering the current growth in credit, we are quite hopeful that we will continue to witness A similar kind of growth going forward also. Normally, as far as the interest rate scene is concerned, I would say that we are expecting there would be some rate cut February onwards because the inflation numbers have already come to about 2.3% and it will have an impact because when it comes to RBI and the last MPC decision in terms of their calibrated tapering, that is what they had indicated. But now since the inflation numbers have come to 2.3%, we are hoping that it will come to a situation where the policy rates might come down and if the policy rates comes down, we are hoping that there will be a softening of the MCLR,
Normally I would say the lending rate a function of the deposit rate more than anything else. As I just mentioned, the lending growth is much higher as compared to deposit growth. It might have an impact on the deposit rates partially and that might impact the lending rates also. But eventually, I feel that with the policy rates coming down, at least we are hoping at least another 50 bps reduction in the policy rates in the year 2019.
With the jolt that the NBFC sector got, could there be some business shifting to banking space and you being the largest, could that help in improving growth trades for you in the near term?
As far as the NBFC sector is concerned, it is quite a dispersed sector. But some of the NBFCs are actually very good. I would say that those which are good, which are in a position to have a balanced ALM and are in a position to raise long-term liabilities and have a multiple source of funding, they would be much better placed in the year to come.
The other NBFCs may eventually have a business model where whatever they are underwriting will probably be offered as a pool purchase to various banks, That kind of a model will probably help them sustain their operations going forward.
It is going to come through. We are expecting that even the regulator might come out with some kind of ALM norms which are as granular as it is for the banking system. If we really analyse the problems faced by NBFC sector, it is more to do with the quality of the liquidity not the liquidity per se. So I think that quality of liquidity aspect will get addressed if at all regulator comes out with their granular prescriptions for the ALM.
We have also seen a lot of states announcing farm loan waivers which is not good for credit discipline and could strain the banking sector. Do you see this as a big threat stepping into election year?
On the part of the banking system also there is a conscious effort about how to go for the asset-backed loans in the agri sector and also to go for the gold loan. So basically, risk mitigated products are something which are becoming the focus for many of the commercial banks. Going forward, when it comes to agri loans waiver, there are certain concerns but at the same time, banks are also trying to get into a space which remains commercially viable for them.
And how soon can we expect a divestment like stake sale in SBI Life? How much funds do you expect to raise if indeed it happens in 2019?
Divestment in the non-core sector is something which has been talked about. We have identified a few such opportunities and are looking for raising money in 19-20. We have done it in the past also and we will continue to maintain our efforts for raising money through the subsidiaries where we have invested over a period of time. Our ability of raising money will also be a function of the market situation at that point of time, but yes, at least some of the opportunities are being actively perceived by us.