State Bank of India is set to get about Rs 12,161 crore as the largest acquisition through the three-year-old Insolvency and Bankruptcy Code (IBC) is completed on Monday. Essar Steel’s sale to the Arcelor Mittal-Nippon Steel consortium will also allow two of the world’s top three steelmakers to gain a foothold in the growing Indian market, giving tough competition to incumbents Tata Steel and JSW Steel.
SBI chairman Rajnish Kumar has been closely involved in supervising the deal and has seen the various twists and turns as the matter went right up to the apex court, forcing changes in the bankruptcy law. In an interview with ET, Kumar expressed relief at the completion of the transaction and explains the impact it will have on SBI’s balance sheet. Excerpts:
Can we finally say that the Essar deal is done?
Yes, we can now say that it is done. The full money has come into an SBI escrow account on Friday. It will now be distributed among the creditors on Monday. We can now look ahead. It has been a long-delayed transaction.
Boost to SBI Balance Sheet
But what can we say? All is well that ends well. I can only say that it is a big relief for me and for my bank that this transaction has finally been completed.
How will you use the money?
We are getting a write-back of more than Rs 12,000 crore and it will directly go to our profit and loss account, in the pre-provision operating profit to be exact. We plan to use this money to shore up our capital and provisions. We have been making provisions all along but RBI norms on provisions are strict, so we will shore up provisions.
How will this recovery impact your balance sheet and profitability?
We do not have any targets for profitability. But yes, this recovery will strengthen the balance sheet of the bank. As I said, we can use the extra money to make more provisions according to RBI norms. We still have to measure the full impact of this recovery but this and other recoveries should help us in reducing our gross NPAs (nonperforming assets) by 1.5 to 2 percentage points at the end of the fiscal. I think by the end of March our gross NPA should come down somewhere around 6% (SBI’s gross NPAs were at 7.19% at the end of September 2019).
Essar is done now but what is the outlook for recoveries going ahead?
This transaction will expedite recoveries and have a far-reaching impact on other resolutions as a lot of clarifications have been made because of this. We are expecting a steady pipeline of recoveries till the end of this fiscal. Taking Essar into account, we could gain Rs 18,000 crore to Rs 20,000 crore by the end of the fiscal. Like Bhushan Power & Steel, where resolution is expected to be soon and where we stand to gain Rs 4,000 crore. We also received money from Prayagraj Power last week. Then there is Alok Industries where we expect Rs 1,800 crore and Ruchi Soya where Rs 800 crore will come to our P&L. The impact on our balance sheet will be different depending on how much provisions we have made.
Will higher recoveries mean that SBI will now be able to concentrate on lending more?
We never moved away from focussing on lending and that will continue. Yes high-profile recoveries like Essar take some toll, so to that extent we can focus better. Lending will continue and asset quality will also improve. But this is a business and some big slippages like DHFL (Dewan Housing Finance Corp. Ltd) have an impact on the whole system.
Source: Economic Times