Tag: Committee of Creditors

Compared to the last year, the severity of lockdowns is not too much this year. If I look at the earnings of large corporations I can see that they are able to face the situation really well. Sectors like steel, cement and IT have shown some improvement. This year there is an impact on the rural economy, which was not there last year. Also, MSME is the most vulnerable and huge employment loss is a major concern. The key difference between 2020 and 2021 is that last year we had many measures from the government and RBI. My assessment is that the bank’s credit growth will remain a matter of concern this year too. Once vaccinations pick up and the third wave doesn’t strike, we can see a pick-up in the economy from the third quarter.

Q. Are the government and RBI initiatives generating the demand?

The government’s Emergency Credit Lending Guarantee Scheme (ECLGS) was very well received. RBI has kept the rates low and taken initiatives but the general belief is that monetary initiatives are not sufficient. We can’t do the heavy lifting which is required in the current situation. Right now the priority is to revive the demand and consumer confidence which can be done only by the government. Fiscal measures may be required. Given the constraints that the government has, the headroom is not unlimited. But this is an unusual situation and unusual steps are required.

Q. What should the government do to generate demand and consumption?

The government of Maharashtra reduced stamp duty from 6% to 2% and it generated a phenomenal business. This shows that such moves demonstrate the demand really well. It was an unprecedented move and it also improved the liquidity position of real estate developers. It is not necessary that only the central government should do all things; even state governments can take initiatives and offer incentives to encourage the demand.

Q. Has liquidation (at IBC) become a scam? Why are resolutions lesser than liquidations at IBC?

There are two things. First, generally for a better resolution what works is early detection. Here, many of the cases were really old and there was no chance of revival. Second, unfortunately, the weakest link in the whole IBC process is the execution. Many positions are lying vacant at NCLTs and many judges are going to retire soon. So how will the system work? We have thousands of cases. We are in a situation where the cases are piling up and resolution can’t happen. We have to make quick and immediate decisions. It’s a patient in the ICU and you can’t leave the patient unattended for months. There are cases where the resolution plan has been approved and voted on by the Committee of Creditors (COC) but there’s no decision from NCLT yet. It is a frustrating experience for the lenders. It is a frustrating experience for the resolution professionals. I don’t see any issue with the law, because a lot of amendments were carried out, but the execution is the weakest link. My view is if you can settle the cases without going to NCLT do that. You can think of a one-time settlement if you can. You may have a better recovery in certain cases there.

Q. Vijay Mallya is ready with the offer to settle the loans, are there legal challenges in accepting his offer?

There are no legal challenges, but till the time I was the chairman, there was no communication received from Vijay Mallya about any such offer. Also, lenders have security. Irrespective of what Vijay Mallya does, bankers have the security to recover their dues from his assets. And that security is very good and valuable. Recently the PMLA court has approved the sale of his assets. In Mallya’s case, whatever is the narrative, whatever be his mistakes, from lenders will recover better than many other stressed assets.

Q. With the emergence of digital and digital-only banks, where do you see SBI?

Today if technology is not the core of your business, then it will not survive. We were good at the back end. At SBI we have adopted digital heavily and the benefits are huge. Banking in 5-10 years will change beyond imagination. Large legacy banks also do not have a choice but to think like a tech company. Maybe it’s happening at different spaces at different banks, but SBI has its own advantage because of the customers and resources.

Q. What is the idea behind privatising two public sector banks?

The major issue is how long should the government capitalise the PSBs? And the government’s policy is also that they don’t want to have more than four entities in non-strategic sectors. There can be a question whether private banks perform better? But there is not an easy answer to this because there are failures in private banks as well. Also, the government wants to increase the governance of banks. So it’s a strategic decision. Because if the government wanted to only increase the governance they would have shifted the ownership of the PSBs to RBI, and the issue would have been resolved. RBI would have become the sole regulator and banks would have achieved similar results.