Top government officials are blaming the new management comprising chairman Pratip Chaudhuri and his three managing directors for a change in policies, particularly on provisioning, that resulted in a sharp decline in profits and the capital adequacy ratio and eventually resulted in SBI’s rating being downgraded by a notch to D+. SBI’s profits fell 99% to Rs 21 crore in the fourth quarter of the last financial year. During the first quarter of this fiscal, things appeared a little better with the bank reporting a 46% decline in profit at Rs 2,914 crore.
The performance of the new State Bank of India management is under the scanner of indian govt, given the steep rise in the provisioning levels and the manner in which the country’s largest lender handled the Moody’s ratings downgrade.
“A change in the top two or three officials does not mean that the policies will change completely,” said a senior government official, requesting anonymity. “Someone can’t be doing things that show him in good light,” added another senior official. The other criticism is the way the SBI management handled the ratings downgrade by Moody’s. “There were no protests from them. It looked as if the episode was used to make a stronger case of capital infusion,” said the first official.
Even analysts say that there is a distinct change in style – from Chaudhuri ending his predecessor OP Bhatt’s resistance on ending teaser rate home loans to changing the focus on lending. SBI, the country’s largest lender accounting for nearly a quarter of the market, has been seeking around Rs 12,000 crore from the government for nearly three years as part of a Rs 20,000 crore rights issue to help grow its business. The finance ministry has, however, not acceded to its demands citing budgetary constraints.
“There is stress, who can wish it away,” said a senior bank executive.
“The provisioning norms are something that has to be discussed between the government and RBI. But if RBI had stuck to the 70% provision coverage ratio requirement we would have been far worse,” added his colleague. The banking regulator has mandated that banks set aside more funds in good times to be in a better position to deal with stress during troubled times. “We should be doing everything to earn an upgrade instead of quarrel with the ratings agencies,” added another executive.
Now there are indications that the government will pump in around Rs 5,000 crore during the current financial year to help shore up the capital adequacy ratio with Tier I ratio dropping below the 8% comfort zone. On its part, the bank management is defending the decision saying it was only following RBI norms and auditor’s recommendations.