HFCs with large builder loans finding it tough to raise money, says SBI senior official

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Dinesh Kumar Khara, managing director, global banking and subsidiaries, SBI.
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State Bank of India (SBI) will begin deliberations on listing its credit card subsidiary SBI Card after July, Dinesh Kumar Khara, managing director, global banking and subsidiaries, SBI, tells Shritama Bose. Banks are differentiating between non-banking financial companies (NBFCs) based on the quality of their parentage, he adds. Edited excerpts:

Liquidity constraints that some non-banks have been facing is now almost looking like a risk to the system. Where do you see this going?

If you look at NBFCs, all of them cannot be put into one category. There are some which are doing pretty well and they are not facing any challenge in generating liquidity. There are others, where there is a perceived threat in terms of liquidity. If you analyse further, you will get to see the reasons in their asset build-up. There are NBFCs who have been very prudent in their asset build-up. Also, they have got the benefit of support from the parent. The differentiators are there. So, the NBFCs with strong parentage are not finding any challenge and are in a position to grow well. We have also observed that some housing finance companies (HFCs) who have a significant builder finance portfolio are finding it difficult to raise more leverage.

When are you looking to list SBI Card and what kind of growth targets have you got for the next few years?

In SBI Card, we used to have a front-end company and a back-end company. The NCLT has approved their merger and we expect to close it by July-end and then we will actively consider taking it public. It is premature to comment further. Growth should continue at the current rate. In terms of profitability and delinquencies, they are managing the book very well.

What do you think of the June 7 circular on stressed assets, considering the clock has already started ticking for some assets?

Yes, the clock has started ticking because the circular clearly says that you have 30 days to identify stress in the system and then another 180 days to resolve it. The better part of the circular is that it is not a default on day one. So, it gives about 30 days for default to be cured. That is a very positive development. Thereafter, the resolution plan has to be worked out. The most interesting point is that lenders have got discretion for the resolution process. It has also encouraged them to take it to the NCLT and in the event of not taking it to the NCLT, the higher provisioning is more like a deterrent. So, this could retain the essence of the earlier circular; it could ensure that there is enough discipline among the borrowers.

One of the components of the circular is the ICA, for which the draft has been circulated. Where do bankers go from here on that?

Getting all the bankers to agree on a certain arrangement is being attempted through the inter creditor agreement. The only thing is that some lenders who were outside the consortium and were lending only a small component, they were perhaps not in a position to appreciate the implications of this kind of a resolution, if at all it is undertaken. So, one has to see the ICA from the perspective of the larger lenders, who should be protected. By virtue of the ICA, that has been assured.

Given the liquidity situation, ARCs are not in a position to buy out loans and how many stakes can SBI keep buying?

We are not buying any stakes, as it is, but I think, when it comes to buyers, for the right set of opportunities, there is enough demand. We will get to see that once the matter is adjusted in the NCLTs and the resolution professionals are in a position to look for buyers. If the asset is good and offered at the right price, there are buyers. But, some are not clean assets in the sense that to buy them, one has to get various regulatory approvals and then there are challenges.

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