State Bank of India (SBI), country's largest bank, on Tuesday said bank is looking forward to list a few more subsidiaries to get a better valuation in the market.

Speaking exclusively to CNBC-TV18, B Sriram, Managing Director, Corporate Banking, said, "I think many of our subsidiaries including general insurance and funds management are doing extremely well."

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State Bank of India expects Rs 50k crore recovery this year

Sriram said the bank is spending almost 50% of technology budget in forward looking activities.

Edited Excerpts:

What recoveries do you hope to see now over the next one year because of the resolution under Insolvency and Bankruptcy Code (IBC)? How much do you hope to get back from other settlements, the sale to asset reconstruction companies (ARC) and also some of these cases outside National Company Law Tribunal (NCLT)?

As far as the IBC is concerned from SBI, the list one and list two of RBI - the list one, we have exposure of about Rs 50,000 crore and on the list two, we have about Rs 28,000 crore. So, total of Rs 78,000 crore of total corporate non-performing assets (NPA) of close to Rs 1,70,000 crore is under these two lists. What we saying is that the first list of Rs 50,000 crore that we have, more or less the 12 accounts are almost close to decision. Two of them have already been resolved. The second list will probably be attended to in the rest of the current year.

As far as the provisioning goes in terms of the background that we have in terms of resolutions through IBC on list one, provisions of about 56% we hold and this is based on actual recovery probabilities that we have seen in these 12 accounts.

On the second list, we have been a little bit more aggressive and tried to provide a little bit more. So, we carry a provision of about 75% on that. On a net basis, the average provisioning on these accounts that we have through the two lists are around 63% and on the back of the expected recoveries that we feel will happen through the year, we are quite confident that this provision has been quite proactive and quite aggressive and there are chances of getting back write backs of some order during the year.

As some of this resolution gets underway, how much money can banks get back? We have seen a figure of Rs 50,000 crore being reported by one of the bank officials, would that be correct and is that this year itself or are you talking about the next couple of years of getting this kind of money back via write backs?

Rs 50,000 crore that was mentioned was in terms of reduction in non-performing loans (NPL), it was not in terms of write backs as such. However as I said, we already hold Rs 50,000 crore of NPLs on list one and it's more likely than ever before that we should be able to recover or rather reduce the NPLs of at least that Rs 50,000 crore.

In terms of recoveries as I said, it depends on quarter to quarter as the resolution starts to happen, so we can't really give a guidance for each quarter. It's likely that, some of the accounts where we hold larger provisions and our recoveries are better, we may need to hold for some provisions that we may require in other accounts during the other quarters of the year. The same fact goes for the ones where we resolve faster and where we require more provisioning to be done. Maybe in the initial quarters, the provisioning will be higher but these will be offset by the higher recoveries that happen during later part of the year. However, largely the trending is down in terms of credit costs. We have already guided that we would be looking at both, slippages as well as credit cost of around two percent and I am sure that we will be able to stick to that as part of our guidance.

If I just take away one or two quarters over this year, which are still uncertain and if you talk of two-three years, based on our numbers and calculation State Bank of India can make an operating profit of Rs 60,000 crore per year if I take two-three years perspective. Do you think that is a possibility?

As far as operating profit is concerned, we are currently striking Rs 60,000 crore. In the current year, we were at about Rs 59,000 plus crore. There was of course an extraordinary income of Rs 5,000 crore there, but largely we will find about Rs 3,000-5,000 crore of some additional income is always there in a bank such as ours. So, Rs 60,000 crore is something that we are already striking. The problem with the results over the last two-three years was purely on the enhanced credit costs that we saw.

Credit cost, as you know is a factor of two things - one is of course the ageing provision that we continue to do and the second is in terms of what are the slippages that we are looking forward to in the next two-three years. We are looking at a watch list of the corporate side of about Rs 29,000 and this includes all of our SMA (Special Mention Accounts) 2 portfolio, all of our SMA 1 except for Rs 3,000 crore. So, I think going forward both in terms of slippages as well as in terms of the aggressive provisioning that we have done - getting the ageing provision down, on both these counts I think we are very well positioned in the next two-three years.

If we take 2020 March as a number, what could be the valuation range of your subsidiary business which includes life insurance, general insurance, mutual funds and all other investments which you have?

Life insurance is already listed and we have got a valuation on that which is in the market as well. We are looking forward to listing a few more of our subsidiaries so that we can get a better valuation. Most of the worth and the value of the subsidiaries are known internally but have not been captured in the market. So, that is a big piece and in the next two-three years, I think many of our subsidiaries which are doing extremely well including general insurance, including funds management, we should be looking at getting a better valuation than what is embedded in the current valuation of the SBI scrip.

More importantly, I think the core business of the bank is extremely robust at the moment. We have redefined completely the risk management processes. Our CASA (current account and savings account) continues to be very healthy at about 45% plus, margins are going to go upwards in the coming year, purely because of two-three reasons. One, the decreasing NPLs, the resolutions where we are going to earn lot of interest income on the resolutions from the sustainable debt which will become interest earning, the large amount of interest reversals that we have done because of the NPL recognition over the last 2-3 years will no longer be there.

We have been very pro-active on the technology front also. Almost 50% of our technology spends is in forward looking activities and I am sure we will be well positioned in the next two-three years to create a value for the company, which has never existed before. I think SBI's return on assets (RoA) is the maximum, at around 1% mark. I am very optimistic and bullish that sort of figures will come in sooner than later.

First Published:Jun 12, 2018 8:43 PM IST