State Bank of India (SBI) Chairman Dinesh Kumar Khara stated that SBI will be able to absorb the additional provision requirement if the Reserve Bank of India (RBI) implements the new norms on project finance as proposed. However, it may be necessary to revisit the pricing of loans. The regulator has proposed a standard asset provision requirement of 5 per cent during the under-construction period in a phased manner for projects under implementation. This would lead to banks having to set aside additional capital due to the higher provision.
Khara mentioned that based on broad assessments, even the incremental provision that will be required would not be substantial. He expressed confidence in SBI’s ability to absorb the additional provisioning numbers without much disruption. SBI intends to relay its views on the proposed norms to the RBI.
Furthermore, Khara highlighted that if the new norms become a reality, the pricing of existing loan facilities will need to be reevaluated. The Chairman suggested that the pricing of loans may be revisited if the proposed higher provision requirements are implemented, indicating that the RBI may be of the opinion that the risk is not currently being properly priced.
Regarding SBI’s project finance book, it stands at around Rs 1.5 trillion. Additionally, SBI anticipates an additional provision requirement of Rs 30,000 crore due to the transition to the Expected Credit Loss (ECL) framework. However, SBI seems well-prepared for this transition, with a provision buffer of around Rs 33,000 crore. Khara also mentioned the bank’s openness to raising equity capital in the current financial year, including the option to raise Additional Tier 1 (AT1) capital.
Despite the challenges, SBI reported a record net profit of Rs 61,077 crore for 2023-24, a 21.6 per cent increase from the previous year. With a solid capital adequacy ratio and substantial profit ploughed back as capital, Khara expressed confidence in the bank’s ability to support significant growth in the coming year.
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