New lending norms may nudge banks towards retail loans: SBI

Mumbai: Stringent RBI norms proposed for corporate lending are expected to nudge banks towards consumer loans, SBI Chairperson Arundhati Bhattacharya has said while reiterating that there is no bubble in the retail segment.

The Reserve Bank had last month come out with draft guidelines on credit to large corporate borrowers asking banks to make additional provisions if the loan amount crosses the prescribed limit.

"The latest norms regarding lending to large corporates make corporate lending more costly both for banks as well as the borrowing companies," Bhattacharya told PTI in an interview.

"So, the Reserve Bank itself is nudging us towards a model that is more retail," she added.

She was quick to add however that State Bank of India has not seen any stress and only RBI would know about the system as a whole.

RBI had on August 25 issued new guidelines on capping lending to large corporate/related parties. With a view to reducing risks in the system, RBI proposed to limit exposure of a bank to a business group to up to 25 percent of its capital, down from the existing 55 percent.

"The large exposure limit in respect of each counter-party and group of connected counter-parties, under normal circumstances, will be capped at 20 per cent and 25 per cent, respectively of the eligible capital base," RBI has said.

The eligible capital base will be defined as the tier 1 capital of the bank as against capital funds at present, it added.

The move comes as bad loans are on the rise with stressed assets of the system crossing 14.5 percent in the June quarter.

Bhattacharya said SBI's retail portfolio is behaving quite well and there are no visible signs of any increase in stresses in the portfolio.

SBI's retail segment has grown at around 20 per cent last year and also in the first quarter of the financial year.

"Today, we have a much better monitoring system so that anything that we are doing is getting monitored on a quarterly /half-yearly basis. Therefore, if stress starts building up we can see that very quickly," the SBI Chairperson said.

"But we have not seen that as yet, at least at SBI," she said, adding that "I don't know how it is at other banks but have not heard anything to that effect".

Recently, Bhattacharya had said that retail loans to GDP in the country are at less than 10 percent, which is one of the lowest among the emerging markets.

She had said: "I think we have still a lot of uncovered space in retail segment to grow. The median age in India is 26.5. So, obviously these are people who need these loans in order to fulfil their very many aspirations.

"I think what is being done now is to fulfil an unmet demand. I don't think we are in bubble territory as yet as long as we continue to maintain our good underwriting standards and also get the help of digital which will enable us to have even better picture."

Former RBI governor Raghuram Rajan had raised concerns about lenders, especially state-run banks, shunning project loans and aggressively targeting retail loans.

Bhattacharya said growth numbers of retail segment which she sees at SBI or other peers and NBFCs do not show any major stresses build-up.

"It is just that it is the role of the regulator to look at all areas where there is rapid growth to ensure that there isn't been something wrong that has been building up.

"That is the role of the regulator," she added.

With the pay commission awards coming into the system and the festive season kicking in, she said she expects good traction in the retail space.