‘India to see credit-led growth on RBI stance’: Zarin Daruwala

Standard Chartered Bank’s Indian business was reporting losses when Zarin Daruwala took charge in 2016. But it took just a year for the first woman CEO of the bank’s Indian operations to turn it profitable. She cut down the bank’s large debt exposures to corporates, introduced technology to identify credit risks and diversified the loan book.

In an interview with Manju AB, Zarin also talked about the role played by the Insolvency Bankruptcy Code (IBC) in recovering bad loans, the risk of lending to stressed sectors, the credit shortfall to the micro, small & medium enterprises (MSME) sector due to crisis in non-banking financial companies (NBFCs), and the prospects of growth in a benign interest rate regime.

How did you manage to turn around Standard Chartered Bank’s Indian unit a year after you took charge?

When I joined, the Indian business of the bank was in losses. In little over a year, I reversed the trend and our profit in the rupee balance sheet terms was Rs 1,900 crore in 2017. We have a dollar balance sheet as well, which is not public. Both the books turned profitable.

The bad loans were tackled and exposure to companies was reduced. The turnaround story revolved around some of these key measures. Since then, it has been a good journey.

You had a mountain of bad debt to deal with when you joined in 2016. How did you tackle this?

Frankly, I had no idea that the NPAs (non-performing assets) were so large until I joined the bank. But I was not alarmed. I initiated a number of fire-fighting mechanisms which sharply brought down our bad loans.

Earlier, we were dependent on the relationship manager to do a good job. So, it really depended on whether the relationship manager was doing his job well. Now we depend on technology to de-risk the bank on the loan side. We are using a homegrown fintech company to monitor our clients. Lots of companies have a web of subsidiaries and connected companies.  Any feed to the Registrar of Companies (ROC), any income tax raid on any company and we get an alert. The money trail issues with companies where an auditor of one company is a director in another company are also under check. The round-robin kind of things that were happening gets intercepted in our system.

There is a lot of intelligence that is being gathered on the corporate side. This helps us to nip the growth of bad loans at the bud stage. While monitoring the receivables of the bills of our clients, we check if sales are happening to those debtors and scrutinise the payment track record. Technology plays a big part in sharpening our monitoring system. It is working brilliantly for us. Loan impairments have significantly dipped.

So, now you are armoured for the future. But initially, how did you control bad loans?

There are no tall trees in our bank. That is what we call large exposures in the bank. So we brought down the exposure limits, depending on the rating those companies got from agencies. We undertook a lot of de-risking. That is if we had extended a debt of Rs 100 crore to a company, we decided that this is a matter of high risk and so engaged with the client and brought down our exposure, depending on their rating. We also looked at the tenor of the loans and decided for a particular repayment period.

You still have big loans like Ruchi Soya with an exposure of Rs 600 crore and Essar Steel of over Rs 3,000 crore?

We have undertaken aggressive provisions. The provision coverage ratio is now 94%. So when we get back the money, we will write it back to our profits. And I am very focused on the profitability of the business.

Is your lending activity sector agnostic or are you wary of some sectors like real estate?

Real estate is not so much of a problem for us. We just have one NPA from this sector in the last ten years. What is more important to judge is the client. There will, of course, be some sectors we will have to be careful about, but that doesn’t mean we will go overboard on other sectors. It actually depends on the clients and their cash flows. We have a very selective approach. If there is a global company which is setting up projects in the country, we will surely back them. We could also look at some local players.

How has the IBC helped in the bad loan recovery process?

It has brought about 43% realisation, which is not bad. But the issue is that a large number of cases are going to the IBC. I think the infrastructure of IBC courts need to be beefed up so that they can handle many more cases. But the fact remains that the IBC has created a fear among the defaulters. Earlier, it was more a bank issue; now it is also a client issue. The clients are conscious of their credit behaviour. The sharing of data, the transparency and the arbitrage is no longer available. It has resulted in a much better repayment record in the last few years. 

But did the new RBI circular on stressed assets dilute the bankruptcy proceedings?

I don’t think there is any dilution. It is a nice carrot and stick regime. It gives you 180 days to resolve the debt, which is what it would take normally, and you also have the option of taking the case to the IBC. Failing to take it to the bankruptcy court is attracting higher provisions, so banks will be forced to act. One-day default is a bit too stiff. The default, for instance, could have happened due to a fund mismatch. If there is a default for 30 days, then that could really be the beginning of a problem.

Are the telecom and aviation sectors under deep stress?

Telecom issues have been there for the past three or four years. The aviation sector is always troubled across the world, as the price of crude oil is not under control. The stressed balance sheets of the NBFCs will lead to a shortfall in credit, which needs to be occupied by other lenders. They were big funders to the MSME sector; so banks will have to step in. The big NBFCs, which have a corporate backing like the Tatas, Mahindras and L&T, will all grow. Those NBFCs without any corporate backing will be affected. 

Will the demand slowdown impact growth?

RBI is bringing down interest rates. A benign interest regime will ensure that the EMIs (equated monthly instalments) come down, making it affordable for people to invest in homes, cars and other retail loans. The real estate sector is a credit-led growth. In a lot of cycles when interest rates come down, retail loans pick up. Lower interest rates spur mortgage loan growth significantly. 

There will be a credit-led momentum to growth as RBI turns accommodative and induces a benign interest rate regime.