INSUBCONTINENT EXCLUSIVE:
Mumbai: The Reserve Bank of India (RBI) has pointed out a ‘conflict of interest’ between State Bank of India (SBI), the country’s
largest lender, and its subsidiary, SBI Capital Markets.
SBI Capital is a leading player in syndication of big-ticket loans for corporate
India and rejigging of debt amid rising stress
The regulator has conveyed its view to SBI, which is planning to recast the operations of the bank’s investment banking arm.
The exercise
could lead to hiving off the cash-spinning loan syndication division of SBI Capital Markets, offering a slice of equity in the entity to
foreign investors, two senior bankers told ET.
According to senior officials in the banking industry, the regulator’s attention was drawn
to the debt syndication division by some of the small- and medium- sized banks which told the government that part of today’s ‘problem
loans’ owes its origin to advances sanctioned on the basis of advice from SBI Capital Markets.
SBI officials, however, strongly refute the
allegation, saying that no bank can blame the SBI group as each lender should and does conduct respective due diligence before lending.
When
contacted, SBI chairman Rajnish Kumar said, “We are looking at revamping SBI Caps in a big way
Details are being worked out.”
“We may sell part of equity stake and restructure the debt syndication cell of SBI Caps,” the SBI
chairman added.
He declined to share details as the board is yet to approve a resolution on the matter.
SBI is likely to merge the debt
syndication cell of SBI Caps with the relevant department in the parent bank
Besides a potential regulatory conflict, RBI has also pointed out a likely duplication of work between the main bank and the subsidiary
“Since there are cases where SBI Caps has advised on loan restructuring for corporates which are direct borrowers of SBI, a conflict of
interest cannot be ruled out
So, for argument’s sake it is possible that the I-bank may be driven by the bank’s interest rather than by an independent view,” said
a senior official of a stress asset firm.
Many banks’ confidence in SBI Capital was understood to have been shaken when they took a knock
following the bankruptcy of Kingfisher Airlines
The SBI arm was the advisor in restructuring of the troubled airline’s debts
“There have been instances when SBI Caps was engaged as adviser in syndication of loan and later hired to restructure debt when the
borrower failed to repay,” said a banker.
Over the past few months, RBI and the government have been scanning the overall eco-system in
addressing the problem of non-performing assets (NPAs or sticky loans)
They have studied the functioning and role of rating agencies, registered valuers, large chartered accountants and management consultants
including Big4 firms besides banks.
According to another banker, many lenders were drawn by the SBI brand — often SBI agreed to lend when
SBI Capital was the syndicator, and when SBI agreed to lend other banks too joined a consortium to bag a slice of action in a sluggish
corporate loan market.
SBI Capital’s exit from loan syndication move would be cheered by many loan arrangers and restructuring advisers
vying for business in a competitive market where fee on a deal is 1-2%.
