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SBI announces Rs 6,000 cr one-time settlement scheme for tractor loans

The country’s largest lender, State Bank of India, has announced a one-time settlement (OTS) scheme worth Rs 6,000 crore for tractor loans.

Speaking to CNBC-TV18, SBI Managing Director Rajnish Kumar said the lender was willing to take a haircut of 40 percent on outstanding tractor loans as of September 30, 2016.

He said accounts in the category of doubtful or loss as of September 30 for loans disbursed before September 2011 will be eligible. Proposals submitted till March 31 this year will be considered.

Kumar said a circular in this regard was issued to branches in early February and that the power of the loan waiver will lie in the hands of the branch manager.

On Prime Minister Narendra Modi’s promise of a loan waiver to UP farmers, Kumar said there had been no talks with the central or state governments in this regard so far. He said SBI’s agricultural lending book in UP is worth Rs 12,000 crore.

Kumar said SBI adopts the OTS route from time-to-time to maximise recovery as it often produces good and quick results, and efforts were underway to make agricultural lending a viable business model. He said SBI had announced OTS schemes for SME and education loans earlier in the year.

Below is the verbatim transcript of Rajnish Kumar’s interview to Latha Venkatesh, Surabhi Upadhyay & Prashant Nair:

Latha: Is there anything new that has been announced in terms of one time settlement (OTS) for agricultural loans?

A: We have announced OTS for tractor loan and time to time we do go through this route whether it is agriculture or small and medium enterprises (SME) or education loan, where we want to maximise our recovery and we feel that if we offer an OTS, it may give good quick results and they are targeted about a certain category of accounts. So that’s the only thing we have done and as I said we had an OTS even for SME and education loans.

However, when we announce such a scheme because it is schematic – that is why the delegation of power is such that it can be settled even at our branch manager level, it is non-discretionary in nature and it is board approved, so in terms of convenience, in terms of a sanction, in terms of clarity, it is all parameter driven and these schemes are non-discretionary.

Latha: Can you give us some more details of tractor loan. When it was announced and what are the details of this one time settlement for tractor loan?

A: The accounts which are in the category of doubtful or loss asset as on September 30, 2016 and these are the loans which were disbursed before September 30, 2011. We are saying that other agri loans like Kisan Credit Card (KCC) and other term loans of the same tractor and farm loan account borrowers may also be covered with the same concession. So we are ready to take a haircut of 40 percent on the outstanding balance as on September 30, 2016. We issued the circular on February 2, 2017 to our branches, internally.

Latha: The other two – SME and education were also around February 2017?

A: The SME was sometime in December and there was a cut-off date and then we said that people can apply up to March 20 through that. Education loan was earlier than that.

Latha: The tractor loan scheme runs out on March 31?

A: This scheme – all the proposals which are received for settlement as per the scheme up to March 31, 2017, they all will be considered. So it is a limited window we have opened.

Latha: Is there anything fresh that you are planning to consider especially with respect to farm loans?

A: Nothing is special but farm loans or agriculture lending – they are doing quite a couple of things to make it a viable business model and we have a programme which we initiated about a year ago, which is called farm to fore, it’s basically from produce to dining table under a tie-up with corporate. So that programme is going on.

Latha: My question was more related to the events of the past few days. We have seen an overwhelming victory for the BJP and during campaigning, several parties including the BJP had promised loan waivers. Is anything in the works in terms of extremely distressed loans?

A: We haven’t heard anything from the government of those states. So when they announce or formulate a scheme then we will react to that at that time but our position in regard to loan waivers in any case from time to time we have been making our stance clear to Reserve Bank of India and the government.

Latha: Which is?

A: Let it first be announced and then we will react.

Surabhi: Would you have the breakup of the advances that you have under farm loans in the state of Uttar Pradesh?

A: I do not have it right now but my total portfolio of agriculture lending in the country is Rs 125,000. I don’t have the state wise breakup but it won’t be less than Rs 10,000-12,000 crore for sure.

Prashant: What is the value of these loans we are talking about, which fall in the doubtful category and which may be eligible especially tractor?

A: It will be about Rs 6,000 crore for tractor.

Prashant: On which you are ready to take 40 percent haircut you said?

A: As I said these were the loans granted before 2011. They all are in doubtful and loss category.

Prashant: What about SME?

A: SME was a different scheme.

Prashant: What was the scheme and what is the value there?

A: The haircut was 20 percent there.

Prashant: What is the value of those doubtful loans for SME overall?

A: I do not remember the number for SME overall but that was the scheme applicable for loans up to Rs 25 crore. So when we come out with this type of OTS the thinking is that through legal means or through other means we are finding it difficult to recover these loans and OTS sometimes gives us a better recovery and the purpose of formulating the scheme as I said the key element is non-discretionary, it is parameter driven, it’s a tick box approach. If our branch manager would tick all the tick boxes then at his level he can approve the scheme, so the delegation of power is right up to the BM level.

Surabhi: To understand – historically what the precedence has been, your exposure for instance the state of UP, Rs 10,000-12,000 crore. Is the haircut on some of these loans which have already gone bad, would it be as much as 40 percent? Is it really a haircut or what do you expect the state or the central government to make good. How does it work?

A: In all the past loan waivers which happened either under the central government scheme or we saw in Andhra Pradesh and Telangana. So from the bank’s perspective you get the money and yous quality of portfolio improves, but what it does is in our view it vitiates the repayment culture – that is the negative aspect or which from the bank’s perspective, if the government pays you and your recovery improves temporarily for that particular loan, so you are not worse-off but what it does is it gives hope to people that every time when there will be election, there will be a loan waiver and that is something which needs to be consider by all while announcing loan waiver but per se we are not against helping the poor people or the poor farmers, but the loan waiver is the negative dimension which we raised at the time of Andhra and Telangana elections also. We presented to RBI but ultimately it’s a government decision.

Latha: So no at the moment loan waiver discussions with any government or the central government?

A: Not at all.