Safest Way Is to Not Allow Corporates to Float Banks, but India Is Credit-Starved: SBI Ex-Chairman

In an interview with Mitali Mukherjee, Rajnish Kumar spoke about the Yes Bank merger and the RBI panel's recommendation to allow industrial houses to float banks.

New Delhi: In a candid and wide-ranging conversation with Mitali Mukherjee, former State Bank of India (SBI) chairman Rajnish Kumar said he was confident that the public sector lender had put its bad loan devils behind it, despite the impending stress that COVID-19 would likely bring the financial system.

Kumar said he was also certain that SBI would meet its target of credit growth at 8%. Refuting concerns voiced by Moody’s around restructuring of loans, he said the restructuring pipeline for SBI was not too large.

He also said the bank had provided 100% provisioning for NBFCs like DHFL. He said Rs 36,000 crore of NPAs was the legacy amount for SBI and that had been fully provided for.

He was also confident the Supreme Court’s decision to create a special dispensation for loans to thermal and gas based power projects (about Rs 3 lakh crore worth) would not be a stumbling block for banks as the disbursement process to IPPs (independent power producer) had been smooth.

On the Yes Bank merger, Kumar admitted it was an event that was “unforeseen just like COVID-19”. He also said while Yes Bank had been upfront while presenting their balance sheet to SBI ahead of the merger, the pandemic has complicated matters.

Also read: Watch | Former Deputy RBI Governor Viral Acharya on India’s ‘Deep’ Banking Sector Problems

Comparing the current scenario to 2018, the former SBI head said the situation was very different, COVID-19 was not going to bring on the bad loan crisis of ’18, as banks had become far more prudent with regards to bad loans.

Corporates in banking

Over the last week, a recommendation made by a central bank internal working group (IWG) of allowing industrial houses to float banks has attracted severe criticism from several experts including former RBI governor Raghuram Rajan and former deputy governor Viral Acharya.

In a joint note published on Monday, the duo have questioned both the timing and the dangers that lie in the move.

In response, Kumar said these were very valid concerns around the concentration of power and misuse of funds. There was also, he said, the very real danger of rules being put in place, but execution by the RBI faltering.

“The safest way is don’t do it. But the reality also is that India is a credit starved country, especially at the MSME level. Can corporates be allowed banking licenses where they are barred from lending in the corporate space, but can invest in the non-corporate lending space, like farm lending etc ?” he said.

In the interview, the former SBI boss also questioned the expectation that corporates will rush into the banking space. “Banking is not a great business, world over. And corporate banking is the most difficult, while also often being a loss making business. No corporate will rush into the banking space in a hurry.”

Watch the full interview here.