The mood of India’s largest bank, the State Bank of India, has turned very cautious, especially over the past three months.
The bank is unwilling to consider risky proposals and refuses applications from companies with a rating of BB or lower. “The objective is clear and he (the SBI) does not want to take any new surprises from now on,” said a senior source.
“The one thing when we do underwriting is that we have to make sure it matches our appetite. Appetite is not in terms of how much NPA we can have; rather it should be act from the lower NPA than we should have,” said SBI Chairman Dinesh Khara, speaking to the media on November 5.
“We need to identify the risk and put in place the mitigation measures. And as long as we are able to do that, we will not like to touch credit that is not in line with our risk appetite,” he added.
Khara’s three-year term as SBI Chair ends on October 23, 2023.
Corporate loan exposures
Meanwhile, the bank is also tightening its grip on some of its existing corporate loan exposures. Sources said businesses looking for refinancing or credit limit improvements don’t have it easy with the bank, even if their credit rating is BBB or lower.
“A lot of questions are being asked about why these companies are looking for additional credit improvement and whether they should receive a rating upgrade, SBI prefers to see if the upgrade materializes before it can increase its exposure to these accounts,” said a senior banker familiar with the matter.
SBI increased the share of corporate loans with an A and above rating from 58.5% in FY19 to 81% in Q2 FY23 and aims to maintain the composition of the corporate loan portfolio at these levels.
Moreover, with its gross and net NPAs at 3.52% and 0.8%, respectively in the second quarter of FY23, which is the best level since FY2002, efforts are underway to ensure that SBI does not accept risky proposals that could jeopardize its position in 3-5 years.
“This is the briefing given to every senior member of the management team,” said a banker familiar with the development.