Since their bank's base is small the credit growth in percentage terms appears to be large. So, the credit growth for the bank will remain above industry but will moderate to 16-18 percent in FY14, says CVR Rajendran, ED, Bank of Maharashtra.
In an interview to CNBC-TV18 CVR Rajendran, ED, Bank of Maharashtra clarified that finance ministry had sought clarification from the bank on credit data because it had asked for additional capital and permission for a qualified institutional placement (QIP) issue.
The public sector lender had reported high credit growth of around 35 percent in FY13.
He further said, since the bank has a small base, its credit growth in percentage terms appears to be large. “So, the credit growth will remain above the industry, but will moderate to 16-18 percent in FY14,” he added.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: Could you clarify whether the finance ministry has sort an explanation from the bank with respect to 34 percent growth and credit that you saw in FY13. So, could you tell us whether it is true or it happened and at a time of little bit of a slowdown how did the bank see such a sharp increase in credit?
A: Firstly, finance ministry had not called for any explanation. The finance ministry had called some data on credit growth because we had asked for additional capital in a substantial way and we asked for permission to go for a qualified institutional placement (QIP) issue. Therefore, they were asking for a data on credit growth in the last year, which we have submitted.
The credit growth in terms of percentage is around 35 percent. In real terms it is only Rs 18,000 crore. As our base is small, in percentage terms it appears to be big but otherwise the growth is not that big as it is projected to be.
Q: Banks with smaller base like Yes Bank or Development Credit Bank (DCB) have not been able to grow credit at 35 percent. This is a fairly robust growth that you all have done. What were the major areas that were asking so much credit from you?
A: Out of the Rs 18,000 crore, Rs 3,400 crore is only priority sector growth because we were running short of priority during last year; we were running short of agriculture. So, during the last year priority has grown other than agriculture. Agriculture growth was not great because Maharashtra was having drought during last year.
My small and medium enterprises (SME) portfolio and retail portfolio has grown very substantially and infrastructure portfolio is one thing where we have grown around Rs 5,200 crore because that is where the demand was coming from. Even within infrastructure, substantial amount has gone only for the public sector units, Oil and Natural Gas Corporation (ONGC) was building up its infrastructure. There are also some roads, some ports and other areas where we have given loans.
Commercial real estate is one area where we have given about Rs 2,300 crore and finance companies is another area; our non banking financial companies (NBFC) exposure is larger in our portfolio. We have more than 10 percent exposure to NBFCs and they are all AA rated portfolios.
Q: The last numbers we got from you Q4 your gross Non-Performing Loans (NPLs) were still standing at about 1.5 percent. Where do they stand now?
A: This quarter there will be some increase, but still it will be way below 2 percent.
Q: I would understand that the regulators would have had questions when they see an outlier in terms of credit growth. You may have definitely had questions from the RBI?
A: Whenever there is a growth like this RBI always have audits. Our Annual Financial Inspection (AFI) is going on. Probably in another 2-3 days they will be closing the audit. Then we will be know RBI's perception, but to the extent that I understand there is no problem seen by the RBI so far.
Q: Is there therefore a policy of the bank that for FY14 or for the remaining 9 months you may slowdown? Are you already seeing that demand is petering out or at least finding good assets is becoming a problem?
A: That is true. We are not able to grow at the rate which we were growing last year. In the last year we have sold about Rs 5,000 crore of our portfolio at the year-end to manage our capital adequacy requirements. That Rs 5,000 crore has come back to my portfolio today. It was sold only through Inter-bank Participation Certificate. That will result in growth for the current first quarter, but incremental growth during the first quarter is not that great.
Q: What would your expectation for FY14 credit growth be?
A: We will be around 16-18 percent. We will still be more than the industry because of our smaller base, but it will not be around 35-36 percent. Around 16-18 percent is what we are planning for the current year.
Q: Demand for credit will always be there, but in a situation of slowdown which was the case even in FY13 finding good assets would be a problem, which is why this 35 percent credit growth leads to a bit of trepidation. What do you think will be the bad loan generation in the current year? Do you think you may overshoot 2 percent?
A: When the market has bottomed out it is the right time to enter the market. Even in the credit market it has bottomed out, that is what we believed during the last year. Bank of Maharashtra is known to be an aam aadmi ka bank. Most of our credit was only to SME, agriculture and our corporate portfolio was very small. It was roughly about 36 or 37 percent. Today the corporate portfolio has come up to 50 percent. Even now it is way below the other banks' corporate portfolio. We have taken good and acceptable names in the industry. I don’t think there is any concern at this point in time.
Q: We understand the RBI was also a bit worried about your corporate clients. Was United Spirits, the UB Group one of your clients and was that a matter of concern with the RBI?
A: United Spirits, we have given about Rs 150 crore. I am sure that United Breweries is not going to be a problem at any point of time. It was a good company and today it is taken over by a foreign company and the foreign company insists that all the loans in Indian rupees is to be paid back. So I will get back my entire money.
Even otherwise, the cash flows available in United Spirits is sufficient to service my loan. There is no concern on them. Rs 150 crore is not a very large considering their balance sheet size.
Q: I just wanted to know if the regulator raised concerns on an account like that. There was no specific concern with any loan account?
A: No, there was no specific concern.
Q: You were speaking about capital and Qualified Institutional Placement (QIP) request that you have put in with the government. Can you just give us some more details? What is your current capital adequacy? What do you think you will need by end of FY14 and on what premises are you calculating capital? What kind of loan growth?
A: 7.57 percent is my tier I capital as on date. The RBI audit after completion may have some additions or deletions according to their calculations. Presuming that around 7.50 percent is my capital adequacy today, I must have tier I capital of 8 percent.
To reach the 8 percent and considering my 16 percent growth my additional requirement of capital could be of around Rs 1,500-2,000 crore. The Finance Minister has assured that he will be infusing a part of the amount as an additional capital now. The rest we are trying to raise in the QIP market.
Q: How much have you got assurance from the government in terms of capital? What is the size of the QIP you are contemplating?
A: The government has assured that they will infuse capital into four banks. One bank is Bank of Maharashtra. These four banks are having capital below 8 percent. So we are one of the banks. The quantum is not known to us. Of course if the government is giving me Rs 1,500 crore, we will not go to the QIP.
If the government is not able to provide the entire capital, then probably for the remaining amount we will go through QIP and raise the capital.
Q: When will you know?
A: The proposal is pending with the ministry. They have collected the data from us. Our Statement of Intent (SoI) target will be fixed in the next week. Once the SoI target is fixed and they know the quantum of capital required, probably they may go ahead.
Q: Was there a concern from the ministry or the RBI that you were raising your loan growth at 35 percent when your capital adequacy was just bordering 8 percent. Was that one of their concerns?
A: No, capital adequacy was not discussed at any point of time. Government also wants growth. It is only the quality of growth which we are discussing. We are confident that quality of growth is good. There is no concern on that. Only area which is concerning me today is infrastructure, because the payments are delayed. Maybe some slippages may happen in the infrastructure.
Q: Wouldn't you have a fix on how much might go bad in the current quarter? What might have been your slippages in the April-June quarter? Just a ballpark figure.
A: It will be slightly more than last year same quarter. Every year, we see about Rs 300-400 crore slippages in every quarter. Probably this time it could be around Rs 500-600 crore.