Pratip Chaudhuri,Chairman of State Bank of India says the drift in the economy has ended and there are a number of signals to suggest that the economy will do better in 2013-14. In an interview to George Mathew,Chaudhuri says that the deterioration in the asset quality has stopped and the interest rate cycle is getting softer. Excerpts:
How do you see the economic growth prospects in the new fiscal?
Certainly it should take a turn for the better. The year 2012-13 was a washout… 2013-14 should be better. There are a number of signals. One is the relative buoyancy in the stock market. Some projects are getting revived. Except for some pockets in India,agricultural performance is good. There is a greater confidence that the government has started addressing some of the issues. The drift has ended and the interest rate cycle seems to be getting softer. But the proof will be when you look at the IIP data and find a good growth.
Which sectors are still showing signs of stress?
Let me talk of improvement instead. After the government has lifted the ban on mining of iron ore (mostly Karnataka) supply of raw material has improved. All steel sector accounts which were either NPA or restructured have now become standard. Deterioration has stopped and some who had just tipped over are expected to bounce back to health. The sector which is in deep trouble is construction related. This includes companies working for state irrigation,public works and at the Centre with NHAI. Similarly the power companies in distribution,independent power producers including gas-based power producers are under pressure.
So how have the quarters panned out?
The first three quarters were very difficult. The fourth quarter,sequentially and seasonally,is the best quarter because thats the time when the corporate debt restructuring (CDR) activity is at its height and also the companies make every effort to put their house in order. From our side too we have sequestered more resources into provisioning for NPA. I wouldnt say this was an additional stress,but the stress that has already been generated is yet to fully die down.
Going ahead where do you see the challenges shaping up this financial year?
The challenge is still to expand the loan book. If you look at the composition of lending,50-60 per cent of it is to the manufacturing sector. With the credit demand for manufacturing sector being slow,banks would need to push credit to other sectors like retail,agriculture,credit card,home,consumption.
Do the rush of cases to the CDR cell show that project appraisals were lax when growth was high?
I would not call the bad loans the result of inadequate project appraisals. I would like to meet a project appraiser who has got it right every time. Many things we have not seen before do,however,happen. For instance,many companies which have been in existence for 30 years have now had to approach the CDR. Yet,there was a stage when the cell was sought to be wound up as there were not enough references. Now there is a deluge of cases at CDR cell and they have had to become selective. Few anticipated this kind of slowdown in demand and a contraction of margins. Profitability has contracted while uncertainties in project implementation,particularly in acquisition of land and environmental clearances have risen. Still we have not done badly. Our credit growth was 21 per cent,something that has not happened in the last 4 or 5 years.
New bank licences are on the anvil. What are your thoughts on it?
There could be consolidation in the banking segment resulting in bigger banks and entry of new players through new licences. Whatever happens,let it evolve. It should not be directed from the top. If some banks want to come together,let them do that. If the government thinks theres room for more banks,that too should be tried out. In 1992,many licences were given but those banks were sold out or merged themselves. The banks that have survived are those who have long-term ethos.