Believe that 10% credit growth is achievable: Ashwani Bhatia, SBI

sbi bank, Ashwani Bhatia, SBI, SBI Q4 results, Q4 earnings, state bank of india, banking news

If you include all our investments, CPs, bonds, NCDs, so on and so forth, that number of 10% growth is possible. Even the number that we have shown this time, if you include the investments in CPs and bonds, is a little higher, said Ashwani Bhatia, Managing Director, SBI to ET Now. Edited excerpts:

SBI numbers in the last two quarters have forced a lot of naysayers to change their opinion on the stock. Now that markets have digested the numbers, some naysayers ask how will SBI achieve 10% credit growth when the aggregate credit growth is going to be less than 10%?

Just responding to your opening remarks. We are big, we are a PSU and we have turned around. To your question that whether we can have a 10% growth, it is quite simple. Last year we grew about 16% in retail, about flattish on the corporate side where we did not grow at all. Obviously, when we talk about the corporate book, it is more a function of how the economy is doing. Assuming that the retail book will remain robust, we are actually already seeing a decent number of enquiries coming in.

A lot of investment capital will be generated during the year. If you look at the overall factors – I mean today we are in the midst of the second wave – we think that as compared to the first wave we are much better off and demand is actually coming into the economy. If you include all our investments, CPs, bonds, NCDs, so on and so forth, that number of 10% growth is possible. Even the number that we have shown this time, if you include the investments in CPs, in bonds, is a little higher.

The shape of the economy is such that big companies are getting bigger and small companies are getting marginalised. The challenge for any bank is that big companies now have the option to go to the bond or debt markets to raise capital. Is that a big challenge for a bank like SBI because while you have the availability of capita and willingness to lend, corporates may not come to a bank?

Well, in a way it should be a welcome development for the economy. The risk is not entirely on the banks, that is the first thing. With the bond market and the equity market, the investors are there for better-rated customers. So, an A, AA or AAA rated-company obviously have very easy access to the market. We think that the growth when you talk about manufacturing and all will be more on the BBB side. On the A-rated companies, that is the part that does have access to the markets. We think that that segment will grow quite fast this year.

One large contributor to any bank in last one year has been the treasury income. Bond yields came down, bank like SBI was sitting on a large treasury gain and large treasury portfolio that may not be a reoccurrence or FY22. How does that change the dynamic for the treasury book?

That is something that we look at very intensively and actively. Suffice to say that currently our modified duration in the AFS book is around 2. If in case of opportunities you can exploit with a book as big as ours. Our treasury book alone, it is there in our investor numbers also, is close to 13 lakh crores. As compared to the smaller banks, obviously we cannot be as agile, we cannot change the duration overnight and all, but it is something that we keep a very close watch on.

If earlier on we had profits on the sale of investments and if the bond yields actually go up, it will come to us in the form of interest income. So, we do not see much risk over there. Finally, mark to market is just a number. It does impact the balance sheet overall, but we are very well aware and cognisant of the fact that this is one area which we need to take very seriously and at the same time carefully.

In the next 12 months will SBI General Insurance and SBI Mutual Fund both go public or only one will?

Possibly only one. You already know the name. We discussed this number of times earlier also. Of course, that needs to be taken to the board and maybe within the next year, year-and-a-half we could be having a listing as well.

As we recover from the pandemic, SBI has also turned around. Last two-three years SBI was in a repair mode. Will you now be in growth mode for next 12 to 24 months? Will we see the original SBI which led growth for the country?

Surely, I mean back to your first question. Firstly, if we are able to do 10% credit growth and if we are able to increase our credit deposit ratio. Now that number we realise is 61% currently. If we are able to move that needle towards 65-66 and as I said, there is going to be demand in the coming months, especially from the manufacturing side, from the pharma side. We think we should be leading again as far as the funding of the economy is concerned.

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.

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