The SBI chief and his crown of thorns

Unlike his predecessor, Pratip Chaudhuri speaks almost in a monotone.

But that's understandable, considering the State Bank of India chairman has had little to crow about -- and that's not just because of the economy.

Last week's battering of the country's largest bank's stock, by over eight per cent, on news reports that it was extending additional loans of Rs 1,600 crore (Rs 16 billion) to beleaguered Kingfisher Airlines was just the latest example of the stress he has been going through.

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Bank officials admit to hundreds of calls from irate investors.

Chaudhuri came out strongly on that day and repeatedly in the coming days that the bank was not going to provide further loans.

There have been many such instances where Chaudhuri's firefighting abilities have been tested in his less than a year's stint.

Even his competitors admire him for this.

A chairman of a large sector bank hit the nail on the head: "He is not a person to make 'big bang' statements. He is not given to gimmicks.

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"But in situations, which warrant strong stand like buzz to support Vijay Mallaya-controlled KFA, he has taken things head on by declaring it as a non-performing asset in public."

Many, on the other hand, question his public stand that the bank will not provide further loans to the ailing airline.

"Given the political pressure, he might find it tough to continue with the same stand.

"In fact, he may have to eat his words," said a chief financial officer of another public sector bank.

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But KFA is least of Chaudhuri's problems. He has had to face many more since taking over.

His predecessor Om Prakash Bhatt's 'teaser home loans' (SBI preferred to call those special loans) had increased his home loan portfolio to over Rs 80,000 crore or Rs 800 billion, but it had also earned the wrath of the regulator, the Reserve Bank of India.  

So, the new chairman's first job was to mend ties with the Mint Street. So, 'teaser rates' went out and lending rates were increased aggressively.

Like a senior bank official said, "There could be difference in opinion, but you can't be at loggerheads with the regulator all the time."  

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His first-quarter results in March 2011 were a disaster -- a 99 per cent drop in profits, the worst in a decade. Not that his predecessors had not taken any hit on their books.

Both Bhatt and A K Purwar took knocks of 35 per cent and 28 per cent, respectively, on their balance sheets in their very first quarter -- the argument being that SBI chairmen prefer to start with a clean slate.   

But his problems were escalated by the under provisioning for employee gratuity and retirement benefits in the first three quarters.

This led to a jump in the tax burden in the fourth quarter, when a big chunk of provisioning was done at one go.

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In addition, provisioning for teaser loans also had to be made.

Though SBI sought to amortise this burden over time, RBI refused to let it do so.

"So, we had to dip into our reserves, which caused the damage," said a senior bank official.  

Dipping into the reserves meant SBI's Tier-I capital fell to 7.71 per cent, below the government-stipulated eight per cent.

The infusion of Rs 8,000 crore (Rs 80 billion) as equity by March-end is expected to make things more comfortable.

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However, experts point out even this relief may be for a short-term.

Internal accruals from profits will remain under pressure against the backdrop of a huge portfolio of bad and restructured loans.

The number of cases going into corporate debt restructuring has been on the rise.

In addition, the proposed stringent Basel-III norms for capital will make things more difficult.  

According to a banking analyst, "Given that the government is under pressure on the revenue front, its limited capital infusion -- the requirement was of Rs 20,000 crore (Rs 200 billion) to fund growth plans for the next two years -- is an attempt to buy time rather than a decision based on assessment of long-term needs."

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Besides fund crunch, Chaudhuri has been facing challenges on many other fronts.

There have been times when he has found himself on the wrong side of the finance ministry.

For instance, when Fitch downgraded the bank, he did not criticise it.

Instead, he said the ratings agency was simply just doing its job.

This did not go down well with the finance ministry, which was quick to rubbish the report.

It even called the agency for an explanation.

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And then, there has been Kingfisher, Air India and many such high-profile cases, which have gone into CDR. With SBI being the lead banker in many cases, it has borne the brunt of every bad news.

Gross NPAs have risen sharply, from Rs 25,000 crore (Rs 250 billion) to Rs 40,000 crore (Rs 400 billion), in the last nine months.

No wonder, the SBI stock has lost almost 33 per cent in the last one year.

Things on this front may continue to be challenging because more companies, especially in the power and infrastructure sectors, are expected to opt for restructuring.

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The standard restructured asset book already stands at Rs 37,610 crore (Rs 376.1 billion), up by about Rs 3000 crore (Rs 30 billion) in the first nine months.

In Chaudhuri's defence, he inherited a bank which was aggressive, sometimes unduly so even in the eyes of the regulator.

Bhatt's style of 'making the elephant dance' had him in the covers of magazines and newspapers.

But this aggression also saw a sharp rise in gross NPAs, almost 66 per cent in the last two years of his stint, according to bank officials.

SBI, under Bhatt, wanted a global approach.

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As a result, aggression was important for success. Chaudhuri, perhaps, is paying for it.

While grappling with stressed assets, the bank has also reined in some of its inefficiencies.

For example, the position of deputy general manager of branch circles had been removed in the last few years, resulting in tremendous pressure on general managers, as some zones have over 500 branches.

This position has been restored.

Similarly, he has continued with his predecessor's legacy of expanding retail business -- deposits and loans.

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Outstanding home loans have grown by about Rs 13,000 crore (Rs 130 billion) to cross Rs 1 lakh crore (Rs 1 trillion).

The educational loan portfolio has grown by Rs 1,400 crore (Rs 14 billion) to Rs 12,042 crore (Rs 120.42 billion).

The auto loan portfolio has shrunk by over Rs 3,000 crore (Rs 30 billion) to Rs 17,409 crore (Rs 174.09 billion).

The latter is more a function of market conditions.

The numbers have improved in spite of trying conditions.

That is, the share of current account and savings account continues to be strong at 47 per cent of total deposits, an improvement of 150 basis points over the last nine months.

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Net interest margins have also increased from 3.32 in 2010-11 to 3.82 as on December.

Most importantly, given the fund situation, the bank has cancelled all unused credit lines and released choked-up capital.

Now, only the sanctioned limit is set aside.

It's been a tough year for Chaudhuri. Words of comfort come from the public sector bank chairman: "In the past year, Chaudhuri was engaged in balance sheet clean-up.

"From next financial year, he would get room to grow with focus and build his own legacy." Everyone will be watching him closely.