Davos WEF 2018: SBI Will Use The Entire Rs 8,800 Crore Recap To Fund Growth
India’s largest lender State Bank of India will use the entire amount it receives from the government’s bank recapitalisation package to fund growth, Chairman Rajnish Kumar said.
“As far as we are concerned, it is entirely growth capital,” Kumar told BloombergQuint’s Menaka Doshi on the sidelines of the World Economic Forum in Davos, Switzerland. That's because the public lender already has enough capital from its earnings to provision for bad loans and stressed assets, he added.
Earlier in the day, the government laid out details of first tranche of the Rs 2.11 lakh crore bank recapitalisation plan that was announced in October last year. Public sector banks would receive Rs 88,139 crore from the government through a mix of budgetary allocation and recapitalisation bonds. Of this, SBI will receive Rs 8,800 crore.
SBI is “adequately capitalised” and its Tier-1 capital ratio is well above the required 10.96 percent under the Basel III norms that Indian banks are adopting in a phased manner, Kumar said. This capital infusion by the government adds another 44 basis points to SBI’s Tier-1 capital, he added.
The state-run lender will now continue its focus on lending to small and medium enterprises, as the finance ministry had encouraged banks to do in its presentation. “We have a 40 percent priority sector obligation anyway, and SMEs form a large portion of that,” Kumar said.
He added that even without the government’s directive, SME lending is good for business as it gives lenders more pricing power. “The risk adjusted capital returns are better in SMEs today,” Kumar said.
Earlier we used to think SMEs would have NPAs but it is the corporate loans that turned out to be more troublesome.Rajnish Kumar, Chairman, SBI
The SBI chief is confident of delivering 9-10 percent growth even next year without having to raise funds. The bank is not in need of any further capital right now as this was just the first tranche of infusion by the government, and SBI will be eligible to receive funds under the second tranche too, Kumar said. Besides, it is well placed to borrow from the markets as well, Kumar added.