Mumabi: In a series titled Mint Manifesto, Mint puts together a series of curated discussions with the most influential leaders on a burning topic relevant to the readers. The first discussion in the series was kicked off with State Bank of India chairman Rajnish Kumar, who joined Mint reporters and editors in the Mumbai office to discuss various issues ranging from the bad loan mess to credit growth. Edited excerpts:

Bad loans in Indian banking sector have been on the rise. Probably we are in the recognition phase now and resolution is about to take off. Before we discuss the current scenario, let us ask you a blunt question—why are we in this mess?

In many cases, we have found that we have financed against property and it was considered to be a safe advance but when you want to enforce security or take possession of the property, you find there is no access to that property. So, these are situations where entirely or 100% blame is on the banks. But let us look at the power sector which is a hot topic now—here more than the internal factors, the macroeconomic or external factors are responsible.

They are all projects of a certain size; they are big projects and the question can be around whether the commercial banks should have financed these projects. There are no easy answers to this.

Between the external factors such as government policies and internal factors like lack of risk management and monitoring by the banks—what is more responsible for the situation?

For the regulated sector, I would say external factors are responsible 70% and 30% internal. For all other sectors, it would be 50:50.

The Reserve Bank has asked banks to resolve bad assets over 2,000 crore each and if you cannot resolve, move the NCLT. What’s happening there?

Most of the cases have been referred to the NCLT and in some power assets, we are trying to find a solution identical to what happens at NCLT. But, it is being done outside the NCLT. Some parameters have been set for this. If it is close to the parameters, then we go for resolution. This means in most cases, we may see change of management; the rest will go to NCLT. About 16-18 power assets are already at NCLT.

You see management change in many cases. Is this the new reality in Indian corporate sector?

The promoters cannot run away from the bankers. We have to co-exist. The change is not about the borrowers; it’s about the lenders also. It is bringing greater discipline among borrowers and lenders. We cannot have over-leveraging in the system anymore. The appraisal and underwriting standards are undergoing a huge change. There is a greater realization about payment discipline as well as the equity from promoters. These two things are getting much more attention from the lenders as well as the borrowers.

What about bad accounts below 2,000 crore?

The situation remains the same. For bad accounts over 2000 crore each, it becomes an obligation on the bankers. For any stressed assets, what are the options before bankers? One is restructuring the debt. If that doesn’t work out, you will have one-time settlement. The third option is finding a strategic investor—an asset reconstruction company or resolving through NCLT. When we take a decision, we evaluate all four options. If you are restructuring with existing promoters, then promoters will have to bring in more money and equity.

On one hand, there is a heightened focus on recovery of bad loans. On the other, there is pressure on banks from investigative agencies. Against this backdrop, how is the main business of lending doing?

Yes, the focus has been on recovery. Credit growth in this country is at 12.5%. If you improve your underwriting standards and then tighten the process of lending, people may say you are risk-averse. In State Bank, we are targeting 10% credit growth for the year. The growth has already been 6%. We are not shying away from any decisions. Internally, we have reorganized the corporate banking and the stressed asset resolution groups. We don’t have pipeline of investments in private sector. But there are huge investments happening in the road sector.

So, the focus continues to be on infrastructure?

Yes, infrastructure, but the model is different—the hybrid annuity model which has less risks. We cannot stop development or credit deployment. We need to learn from the past experience and go ahead.

Finally, what should be done with the government-owned banks? Should we continue to keep them alive using taxpayers’ money?

Generally, there is a feeling that 21 PSU banks should not clone each other. I have said it in the past. Particularly, the smaller banks can find their own niches—that could be regional or say on products; some banks can do only retail. Either you operate in a niche or operate at a scale. Maybe we also need to look at consolidation in the sector. In my view, if we have capable people at the board and management levels, then the problem can be fixed.

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