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Chanda Kochhar explains: How Essar deal will benefit ICICI Bank

In an interview with CNBC-TV18, ICICI Bank MD and CEO Chanda Kochhar talked about the USD 13 billion Essar Oil sale to Rosneft and how it would benefit the lender.

The Essar Group has a total debt of about USD 17 billion, with ICICI being one of its largest lenders.

Below is the transcript of Chanda Kochhar’s interview to Latha Venkatesh on CNBC-TV18.

Q: How dees the deal benefit ICICI Bank? Can you provide numbers?

A: It is difficult for me to talk specific numbers for specific cases. But yes, the immediate benefit is that the debt to Essar Global gets resolved and also, ultimately of course, the debt of Essar Oil will become a non-Essar Group exposure. So, in a way, almost a little over 50 percent of ICICI Bank’s exposure to the Essar Group either gets paid or gets transferred to a non-Essar company.

Q: I just wanted to check whether Essar Global and Essar Oil were in your watch list. So therefore, does your watch list shrink and by how much, 10-20 percent?

A: Again, Essar Oil is not a part of the sectors that we had disclosed in our drilled down list, but yes we had included the promoter entities in the drilled down list. So yes, the watch list does go down to some extent, but I will not give you the numbers. But yes, the answer is that the drilled down list does go down.

Q: Actually the market is extremely enthused that your drilled down list can go down considerably because you are also richer by about Rs 6,000 crore because of the ICICI Prudential money coming in. Can that give you greater leeway to probably recognise, provide and thereby bring down the drilled down list?

A: I really want to make a point that we should make and understand the difference between recognition and resolution. The entire banking industry should now focus on resolution. Recognition, a lot of it has taken place, some more would happen as we go by. But that is really more about accounting entries. What really is important is that we should focus on resolution, we should focus on seeing how these productive assets that have been put on the ground become productive, remain productive so that value is maintained and that is what is in the best interest of the lenders. And we have really been focusing on resolution.

You saw some of the larger deals being announced in the past, the sale of a cement business. We took some of the smaller companies, we broke them into one or two or three parts and then sold them part by part and resolved them part by part. So, we have successes in the form of Gammon, in the form of Jaiprakash and now the resolution on part of the Essar Exposure and that is really what we are focusing on.

Q: I am not taking away from the important of resolution at all. Just to carry that point forward, would you think that Essar Steel in some form will be resolved in this fiscal year because the promoters have money?

A: When we talk of overall the steel industry, the steel industry is doing much better now because of the imposition of the minimum import price (MIP) and many of the steel companies including Essar Steel is now making earnings before interest, taxes, depreciation and amortisation (EBITDA), is actually servicing part of the interest of the lenders as well.

So, there are a lot of positive movements in the steel industry as such and wherever we are able to now work out, find levels of debt that are sustainable and we have an equal role from the promoters to bring in money, there could be more resolutions possible. So, again, I will not talk of company specific future looking statements, but I would say that possibilities of resolution only increase as the industry does better and as promoters are able to bring in part of their equity.

Q: I am not asking you for company or client specific, but actually, ICICI Bank specific numbers only. If you can broadly guide us on the drilled down list. Does it go down by a third or a half sometime soon?

A: We are actually in our closed period now. We will soon announce our third quarter results. So, I am not able to give you specific numbers on any of the lists. But I must say that as I mentioned that once this whole deal is completed, a little over 50 percent of our Essar Group exposure itself will become non-Essar Group exposure or get paid, a combination of the two.

And as I said, there are some of the deals that we have concluded and all of them are going through their regulatory process and they would get consummated soon. Over and above that, there are other resolutions that the banking sector is working on. So our focus has been on resolution. Yes, these resolutions take time, but we look at it deal by deal, exposure by exposure and try and sort them out.