Banks will use the Insolvency and Bankruptcy Code more frequently to try and resolve stressed assets, Arundhati Bhattacharya, chairman of State Bank of India (SBI) told BloombergQuint in an interview on Friday. Bhattacharya, who spoke after the lender released its fourth quarter earnings, said the bank will remain focused on the resolution of bad loans in fiscal 2018, having completed the process of identifying stressed loans over the last two years.
Stressed assets in the banking sector have risen to nearly Rs 10 lakh crore but resolution has remained slow. SBI alone has gross bad loans of Rs 1.12 lakh crore, which account for 6.9 percent of the bank’s total advances. Fresh slippages, or new loans turning bad, stood at Rs 9755 crore in the fourth quarter. Recoveries and upgradation of bad loans were much lower at Rs 1203 crore and Rs 1002 crore respectively.
To speed up the pace of recovery, Bhattacharya said that banks will approach the National Company Law Tribunal (NCLT) more frequently. To be sure, there are some teething troubles but the industry will have to start somewhere, she said.
The slow pace of resolution of bad loans so far has forced the Reserve Bank of India (RBI) to step in. An ordinance issued by the government earlier this month empowered the regulator to directly intervene in bad loan resolution by asking banks to take a particular resolution route.
Bhattacharya, however, does not expect this to become the norm. There may be one or two cases where the RBI asks banks to take specific action but, in most cases, banks will be left to decide, she said.
Beyond Bad Loans
SBI saw its advances grow by under 8 percent in the current fiscal, reflecting sluggish credit growth in the industry as a whole. There are early signs that lending to industry may be picking up.
Some of the segments that Bhattacharya sees credit demand emerging from include the fertilizer and petrochemicals industry. Banks may also push up lending to the renewable power segment which has seen strong growth, said Bhattacharya.
In fiscal 2017, much of the growth in credit for SBI came from retail loans, which grew by 21 percent over the financial year. Industrial credit was subdued with advances to large corporates increasing by just 3.6 percent and loans to mid corporates remaining flat.
GST Rate Too Steep?
Commenting on the GST rate of 18 percent which will now be applicable to the financial services industry, Bhattacharya said that rate was too steep and may increase the tax burden for the industry. She, however, added that eventually tax rates will come down as the tax base increases.
Earlier at a press conference, Bhattacharya said that GST is an extensive tax reform which would require preparation from all ends.
GST is a very extensive tax reform. We expect to be part of it. Regarding payment systems required to accept the payments we are ready. In terms of being an entity that pays tax, there are a lot of preparations we have to do internally as costing of services is much more difficult than goods. There are issues over there, which we are working through. We are making necessary preparations to deploy necessary software for this. We would be able to overcome the impact in about a month.Arundhati Bhattacharya, Chairman, State Bank of India