Do you see growth coming back both in working capital loans and term loans?
Working capital is always a function of the demand in the economy. The working capital limits have not been fully utilised in the recent past. We think that as we open up again around Diwali time or so, we should be seeing decent amount of growth and utilisation of the limits. On the term loans, lot of sanctions are in place. Disbursements need to happen and because there is a lockdown, I would think that once the economy opens up we should have traction on that front also. Roads are doing well, I think airports are going to pick up, solar is another side where a lot is happening. If you look at the entire picture right now as compared to last year same time, we are in a much better situation.
What is your outlook going forward in terms of the NPA trajectory? What you are anticipating over the next year or so?
Last year also around the same time, when we declared our results, we guided the market that our credit costs would be within 2%. This time we did and for the year we did 1.2%. I think in these times we are in the midst of a wave. People are talking of some more stress coming in from a third wave and so on so forth, so let us be conservative. We will stick to the 2% credit cost. We will strive to do much better than that.
If you have that kind of a scenario, we would take that ROA which was 0.48 on a standalone basis, 0.5% on a consolidated basis should move up. Having said that, our ROA for the fourth quarter was 0.58. So, the trajectory is very clear and we do hope that within the next two years or so, we hit ROA of 1%. If that happens, the numbers – our profit – could be upwards of Rs 45,000 to 50,000 crore as such.
In what segments do you see demand picking up? Let’s go deeper into that to see where that confidence is coming from and where you really see strength in the recovery?
We think that the renewable sector will continue to see a lot of traction. We are also seeing that a lot of the distribution and transmission also moving into private hands; it is moving into InvITs. That is another growth area that will free a lot of capital for state governments and central government. We are seeing a good amount of traction in roads. There is a good amount of action on the construction side, on the City Gas there is also traction.
Now on the pharma side also there is the fact that Reserve Bank of India has said that up to Rs 50,000 crore for the banking sector can be part of the priority sector lending and benefits on basements and reverse repo. That would be another area of growth that we are looking at.
What are you doing differently that you sound so confident and bullish? How come five years ago we did not get this outlook or delivery from SBI? What has changed?
I guess it would be the focus. Repeated focus on our large credit book, our underwriting the fact that the entire credit process has changed and the fact that you know we are today more aligned to markets as far as our pricing is concerned. Of course, there is the fact that we have become a little nimbler; digital has helped.
On the retail side, the fact that we can sanction loans digitally online is a big plus. The fact that our housing book is today beyond Rs 5 lakh crore, all of these things do give us a lot of confidence. The fact that the retail book today accounts for a very large chunk of our overall credit is another positive. So, the cleanup has happened and it took us three years. You can only look forward with confidence.
When we spoke last, it was in April end. That time your sense was that there is no large retail delinquency, but COVID this time has struck rural India a lot more. There is definitely a higher mortality rate and the number share has been very large. Are you getting any evidence or data which indicates that the collections in the month of May and June may be challenging?
We saw this last year also, there was a spike in the SMA numbers; SMA 1 and SMA 2 numbers also. But as the economy normalised, those SMA numbers came down. We think the same thing will happen this time also. The recoveries are around 95-96% currently and as the workforce gets back to their work, salaries will once again start coming back.
Let me also tell you that most of our retail is salaried class, public-sector undertakings, paramilitary forces, the army, central government and so on so forth. We see not much risk coming there. I mean it would not be wise to say that there is no risk at all, and to a customer who has taken a housing loan, he would not like to lose a home, right? He would do anything to avoid becoming a NPA and having a bad CIBIL score. That has been the experience in the past. I am sure this will hold this time also.