SL Bansal, CMD, Oriental Bank of Commerce, says that Government of India plans to push 50% of our loan which is on our books to the state government, of which 50% will be bonds that will be issued by the state government and the balance bonds will be issued via special vehicle which will be floated in the market.
From last two years, bankers have been sensitised by various sectors and bankers have put their foot down and have stopped funding the losses. Going forward, we will be funding only the viable projects.
Below is the edited transcript of his interview to CNBC-TV18. Also watch the accompanying video.
Q: There is news that Rajasthan government could hike power tariffs where you have exposure in Rajasthan SEB. Will this move reduce your risk or it has already factored in? There is news that the Rajasthan government plans to convert loans into bonds, do you think there will be an additional restructuring to the ones that you have already restructured?
A: This is good for the banks, as now the state undertaking and state government are complying with restructuring proposals. There is news that Government of India plans to push 50% of our loan which is on our books to the state government, of which 50% will be bonds that will be issued by the state government and the balance bonds will be issued by a special vehicle which will be floated in the market.
Q: There is statement from the finance ministry that they don't want state governments to issue bonds, however, they say that they will back the bond issue by SEB. Does this statement make bonds a secure option?
A: We understand that Government of India will force state government to take 50% loans on their books. Of this total loan, the state government will issue 50% bonds subject to FRBM route. As some of the state government has already hit the limit, therefore, it is not possible for them to issue the bonds, they may issue in a year or two.
Till that time this asset will remain in our books, and the state government will continue to service the interest and the remaining 50% will be passed on to the special vehicle (SPV) which will issue the bond in the market and depending upon their rating, the investors will subscribe to the bonds. So to that extent, our banks asset will come back and our portfolio will get reduced.
Q: State governments buying those bonds or issuing their own bonds for 25% of the exposure and the SPV, all this will be agreed to by the state governments provided for the increased exposure banks come forward and give working capital loans so there is no relief for you, they are creating space only so as to give you more loans, is it relief?
A: Hitherto we were funding only the losses so the outstanding of the SEB were increasing. Last two years, bankers have been sensitized by various sectors and bankers have put our foot down and have stopped funding the losses. Going forward, we will be funding only the viable projects and in view of that background only this tariff has been started moving up which is a good sign. There are few good developments. One, the tariff has started moving up, second, state government is providing guarantee. Third, the deficit will be fully provided in annual budget. So, in a democratic set up, we have to rely on the statement made by the state government.
Q: By when do you feel this mechanism will start working?
A: Except one or two undertaking, the restructuring is complete in our books. There is a possibility of this scheme may get approved in six months time.
Q: If you converted into bonds will it trim your exposure and will it come with riders like waving off penalties or moratorium on interest?
A: No. Suppose as on date, I am having X amount of loan in my books, 50% of the loan will be taken over by the state government. So, my loan is taken care of and for this amount they will be issue bond and only to that extent yield will come down. Bankers in their own wisdom will apply their mind and subscribe to the bond. If it doesn’t suit me then I will not subscribe to the bond that’s all.
Q: Nearly 8.5% of your total book is now in the restructured category. Do you think this is the peak or do you think coming September 30 you could see the percentage of restructured assets actually going up?
A: Electricity and Air India is taken care of. Whatever assets we have restructured in the year 2008-2009 and those who are performing well, they will be out of the restructured books. The economy is still under stress period. Some assets will continue to be restructured; some assets will be taken out of it.
Q: Is it peak for NPLs or will it continue to remain at these levels?
A: Gross NPA amount wise will slightly come down. Percentage wise also it will come down.
Q: How much do you think your loan book will increase in the current year as well as margins?
A: We are expecting credit will grow up by 16% and margin will be 3% plus.