“ECONOMIC INDICATORS POINT TO A REVIVAL IN DEMAND VERY SHORTLY. IF YOU CAN GET THESE ASSETS (NPAs) TO PARTICIPATE IN THAT CYCLE AGAIN, I THINK THIS IS AN ISSUE THAT CAN BE RESOLVED IN TWO TO THREE YEARS’ TIME, MAXIMUM” ARUNDHATI BHATTACHARYA, SBI Chairman
State Bank of India (SBI), the country’s largest lender, sees a “positive turnaround” in the nation’s bad loan mess after the government implements a new rule aimed at resolving the problem, the chairman of the lender said. “The non-performing asset cycle is different this time,” Arundhati Bhattacharya, SBI’s top executive, said in an interview with Bloomberg News in Yokohama, Japan. “Many assets are good quality and required by the economy — when growth turns up, they will perform again.”
India’s Cabinet has approved a plan to give the Reserve Bank of India more power to order lenders to deal with bad loans, according to a government official with knowledge of the matter. Bhattacharya said while she doesn’t have details, she expects it to empower the regulator to resolve India’s bad loan problem within a few years.
“It’s not going to be such a difficult cycle to turn,” she said from the sidelines of the Asian Development Bank’s annual meeting. “Economic indicators point to a revival in demand very shortly. If you can get these assets to participate in that cycle again, I think this is an issue that can be resolved in two to three years’ time, maximum.”
The 10-member Bankex index added 2.8 per cent on Thursday and touched a record high on optimism that new government rules would help resolve the world’s worst stressed-asset ratios. SBI’s shares rose 3.2 per cent to ~299.05, the highest since March 2015.
Asia’s third-largest economy is being weighed down because the soured loans on banks’ balance sheets hinder credit growth and job creation. Various programs proposed by the central bank to resolve the problem have been unsuccessful, with lenders reluctant to write down assets sufficiently and company owners unwilling to negotiate repayment plans.
Stressed assets — made up of bad loans, restructured debt and advances to companies that can’t meet servicing requirements — have risen to about 16.6 percent of total loans, the highest level among major economies, data compiled by the government show.
“India needs a lot more infrastructure than it currently has and therefore it does not make sense to throw it away — rather it makes sense to revive them,” Bhattacharya said, speaking of the assets underlying the bad debt.
Bhattacharya, whose term as chairman ends in October, is striving to boost earnings even as she contends with persistently high bad loans and lower credit demand. The government has yet to announce her successor at the bank even with her tenure set to end in five months.
Appointed in October 2013 as the bank’s first woman chairman and most-senior executive officer, Bhattacharya strengthened the lender’s credit monitoring and measures to recover bad debt. SBI is 57.6 per cent owned by the government and will report March quarter earnings on May 19.
After the merger earlier this year with five of its units, the bank is looking to consolidate and doesn’t plan to do any more mergers for the moment, Bhattacharya said.
"Going forward, because we have done this merger, in the next two years we don’t plan to grow the network," she added. "We will relocate 1,800 of these branches. We will close down branches where there is an overlap and we will reopen them where our presence is thin."
The company took on 70,000 staff through that merger, and expects 17,000-17,500 of those to retire this year, she said, adding that "we are rationalising manpower, we are expanding our reach with the same resources and we are digitising very rapidly."