Mumbai: State Bank of India (SBI), the country’s largest lender, is not worried about the downgrade of its stand-alone credit profile by rating agency Standard & Poor’s (S&P) and expects its bad debt situation to improve in fiscal 2013.
S&P downgraded SBI’s stand-alone credit rating to “BBB-” from “BBB” on Wednesday citing asset-quality concerns.
The downgrade is not a major concern as it constitutes only a “small part of the overall rating”, said S. Viswanathan, the bank’s newly appointed managing director.
The bank is hopeful that it can “improve its NPA (non-performing assets) situation towards the end of this fiscal even though there is stress visible from some segments like textiles, power and aviation,” Viswanathan told reporters in Mumbai on Thursday.
The bank expects its credit to grow 15-18% this fiscal and retail loans, which includes housing and auto loans, to rise 18-20%, said managing director A. Krishna Kumar.
NPAs from education loans, at around 7% of the bank’s total loans to the segment, are a concern, Kumar said. “Though there is stress from the education loan segment, it continues to be a focus area for SBI,” he said.
The bank has been restructuring stressed accounts to facilitate repayment and expects a major part of such loans to turn good. But it estimates at least 15-20% of the restructured assets to slip into NPAs.
SBI is also exploring whether it can restructure its exposure to crisis-ridden, wind-energy provider Suzlon Group, which is currently facing a default of $260 million to bondholders in overseas bonds.
The group has an overall exposure of Rs.14,000 crore to the banking system, out of which that of SBI is Rs.3,500 crore. The loan has not turned bad as yet, said SBI deputy managing director and head of corporate lending Santosh B. Nayar.
Suzlon is working out restructuring options and various banks are in talks with it for such a plan, he said.
“Suzlon has got a very large order book; they are continuously flowing with orders. This is a field where a lot of the investors are interested in. If the finances are set right, obviously they could attract other investors also,” Nayar said.
Suzlon can also look at the option of merging with its European subsidiary, RE Power, to manage the debt situation, Nayar said.
“Company also has a very good subsidiary in Europe—RE Power, which is practically debt free and has got huge cash balances… Suzlon needs to leverage the RE Power balance sheet and probably in the long run merge these two operations. Because when they merge these two operations, the profitability of the whole group can go substantially higher using India’s lower cost of production,” Nayar said.
SBI has provided fully for its exposure to the aviation sector and is in discussion with Kingfisher Airlines Ltd to recover its loans. The firm is expected to draw up a revival plan by the end of this month, Viswanathan said.
The lender’s exposure to Kingfisher is about Rs.1,500 crore, while that of all banks to the carrier is Rs.7,500 crore. The account has turned bad.
“We will explore all possible methods to recover the money from Kingfisher Airlines,” Viswanathan said.
According to another senior banker, who did not want to be named, lenders expect founder Vijay Mallya to infuse equity into the airline by month-end.
Kingfisher Airlines rose 4.8% to Rs.12 on Thursday after 2.6 million shares changed hands on BSE, according to Thompson Reuters data. The identity of the buyers and sellers aren’t known. The stock ended flat at Rs.11.45, while the benchmark Sensex rose 0.93% to 18,804.75 points. SBI ended 1.87% up at Rs.2,268.75.
Kingfisher Airlines is likely to extend its lockout for a second time and has suspended ticket sales until 20 October. The top management is in talks with striking employees to convince them to return to work.
Kingfisher Airlines, which declared a lockout until 12 October, had been selling tickets for flights from 13 October onwards, when the Directorate General of Civil Aviation (DGCA) asked it to stop doing so on Tuesday.
The regulator has asked the airline to submit a revival plan before it resumes flights.
Analysts said the stress on SBI’s loan book is expected to continue for a few more quarters until there is a pick-up in economic activity.
“SBI continues to be a proxy for the overall economy. Though there are positive sentiments emerging from the recent government steps, it is yet to translate into any palpable improvement at the ground-level economic situation,” said V. Sri Karthik, analyst at Mumbai-based brokerage Espirito Santo Pvt. Ltd.
“This, in turn, will mean that it may take a few more quarters for SBI before significantly improving its NPA situation,” Karthik said.