SBI chief Arundhati Bhattacharya tries to defend PSBs, feels private peers risk-averse

MUMBAI: The finance ministry which has been looking to energise the public sector banks with talent from private peers received an unexpected retort from the chief of the nation's biggest lender, Arundhati Bhattacharya, on how it may not be of much help in reviving investments if their track record is any indication.

State Bank of India chairman Bhattacharya had to defend her ilk last week at a meeting with the finance minister Arun Jaitley when the banks were questioned on their poor performance on loans which grew 7.4% in fiscal 2015, compared with 17% for private banks.

The crux of Bhattacharya's defence was that private banks in general are risk averse and do not fund projects that have long gestation, and where the completion is uncertain. But they are eager to buy those loans by dangling the carrot of lower interest rates once the projects begin to earn cash, said three people who were present at the meeting.

She had said it was in defence of the entire PSU banks, and not just SBI. "PSU banks supported economic growth by lending to projects during the implementation period while private banks have largely entered the space of project finance only to refinance projects that are up and running," Bhattacharya reportedly told the audience over which finance minister Arun Jaitley presided. "Lenders face higher risk of delay in repayment of loan during the initial few years when the project is under implementation. The risk gets minimised as the project becomes operational."

Bhattacharya declined to comment on her discussion during her meeting in New Delhi on June 12. State-run banks have been at the receiving end for poor lending practices which has led to their bad and restructured loans rise up to more than 10% of their total loans, technically leaving the industry insolvent.

But banks have been maintaining that their lending decisions were in good faith, but the policy paralysis of the previous government led to lakhs of crores of projects getting stalled.

"The very nature of their shareholding, public sector banks tend to focus on socioeconomic and developmental activities, private banks, while leveraging on technology, have been focusing on profitability and that is the differentiating factor between the two," said Karthik Srinivasan, senior vice-president & co-head financial sector ratings at ICRA. "Secondly, it was bad timing since the business sentiments has not been too good. But having said that one cannot total absolve PSU banks.

Their credit underwriting skills could have been tighter and recovery efforts could have been proactive," he added. Indeed, prior to Bhattacharya, the chief economic advisor Arvind Subramanian had raised such a question in his Economic Survey for year 2014-15.

"Private sector banks did not partake in the biggest private sector fuelled growth episode in Indian history during 2005-2012," the survey said. "This is reflected in the near constant share of private sector banks in deposits and advances in those years."

The share of private banks has remained in the range of 15-16% while that of PSU bank has been around 70-72%. Bankers said the move to support infrastructure projects — at a time when private banks had stayed away from it due to global crisis — has led to higher stress in the loan of PSU banks. Icra report says that in case of public sector banks share of net nonperforming assets to net worth is 34% while for private banks' net NPAs to networth is at 5.2% as on March 2015.

State-run banks have also been the tools for the government to push its social agenda such as expanding the Jan Dhan Yojana and Pradhan Mantri Suraksha Bima Yojana, an insurance cover for the poor. Share of private banks in these is just 4%, while the rest is with PSU banks.