Public sector lender Dena Bank is targeting credit growth of around 15-16 percent for FY14. CMD Ashwani Kumar told CNBC-TV18 that the bank would mainly focus on retail and small medium enterprise (SME) lending to achievethis goal. Kumar is hopeful of ending FY14 with net interest margin (NIM) in the range of 2.75-3 percent.
Meanwhile, he added that the foreign currency non-resident (FCNR) swap window introduced by the Reserve Bank of India (RBI) is an excellent step because it would enable the bank to reduce its cost of funds substantially. Dena Bank has already started putting up ads in Dubai papers for FCNR deposits. Its current FCNR (B) deposits stands at Rs 510 crore.The bank's current base rate is 10.25 percent and it has no plans to change it.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: Just want to talk about your base rate because some of your peers have raised it but you haven't moved on that.
A: Our base rate is 10.25 percent and we have not changed it so far, it remains at the same level.
Q: Any plans to change that in near future?
A: As on date we don't have any plans to increase the base rates and as things are moving up I think yields have come down so interest may slightly ease out. Let us see how things develop because this is a very dynamic and developing market. So as of now there is no plan to raise the base rate.
Q: What is your current cost of funds for the bank and what is the composition of cost of funds, how much dependence do you have on wholesale as well as retail?
A: Our cost of fund as on June was 7.63 percent; cost of deposit was 7.59 percent. It had come down from 7.70 to 7.59 percent in June 2013. As on date we have around 4 percent deposits in certificate of deposit (CD) and around 5 percent in bulk so roughly around 9 percent would be CD and bulk. If you see sequentially from March’13 to June’13 the cost of deposit has come down by around 11 basis points (bps) and cost of funds has remained constant because of some borrowing in the treasury. The yield on advances has also moved up slightly in June quarter. So as on date we don't have any plans to raise base rates.
Q: What about the foreign currency non-resident (FCNR) swap which was introduced by the RBI of 3.5 percent? For Dena Bank in particular how much do you have as FCNR deposits and how useful would this measure be for you all?
A: This FCNR deposit window has been opened for fresh deposits so nothing major has been mobilised during the last couple of days. It is an excellent step taken by RBI - by giving foreign currency non-resident (bank) or FCNR(B) window to swap, the cost of funds would come down substantially. We have already started targeting - we are putting up ads in papers in Dubai for FCNR deposits. Our total FCNR (B) deposit is around Rs 510 crore as on date.
Q: You had 18 percent credit growth in the last quarter. Can you give us some guidance for the full year?
A: Full year we are targeting a growth of around 15-16 percent. Our focus is mainly on retail lending and SME lending. During these five months, we have already made around Rs 200 crore in direct agriculture lending and around Rs 500 crore in retail credit lending. So these are the focus areas and we hope to achieve a growth of about 16 percent in the credit during this year.
Q: In terms of inflows, if in case you are looking to revise your FCNR rates, by when would you do so? In terms of inflows how much do you internally estimate or what are the internal estimates doing because as an industry as a whole there is expected to be at least USD 8-10 billion inflows by November 30 is what the banking industry is talking about. What is your opinion on the same and for Dena Bank in particular what would your internal estimates be?
A: The estimate for the banking industry as a whole is that around USD 10 billion would flow in FCNR(B) deposit by November 30 and that amount should definitely flow in. As far as Dena Bank is concerned we have got about USD 85 million FCNR deposits as a whole and another USD 8-10 million we will be able to mobilize under this window.
Q: In the previous quarter your net interest margins (NIMs) improved by 9 bps. How would you be placed on your NIM trajectory in Q2 as well as may be for the rest of the fiscal?
A: By the end of March 2014, we expect our NIMs to be between 2.75 and 3 percent. Sequentially, from March they have improved by 9 bps and we hope that they would improve by another 8-10 bps for this quarter.
Q: Any estimates on your slippages as well as possibly restructured assets that we could see in Q2? Will it be higher than Q1?
A: Restructured assets in Q1 were around Rs 901 crore. In Q2 the cases which have been referred to corporate debt restructuring (CDR) are around Rs 900 crore. So referred cases to CDR or pipeline would be around Rs 900 crore of which letter of approval (LOAs) which we are expecting to get would be around Rs 400-500 crore.