DCB's fourth quarter net profit doubled from about Rs 17 crore to Rs 34 crore year-on-year driven by higher interest income. MD & CEO Murali Natrajan said the bank's full year growth in advances stood at 25 percent and deposits growth at 32 percent.
He added the bank has been consistenly following the same growth strategy for the past four years.
“However, this year our growth in micro, small and medium enterprises (MSME) and small and medium enterprises (SME) is muted. It is about 6 percent primarily because of the challenges that we saw in the environment. We reshaped the strategy within the SME and MSME,” he said in an interview to CNBC-TV18.
Natrajan is hopeful that the bank will maintain net interest margins (NIMs) in the range of 3-3.25 percent going ahead.
Below is the verbatim transcript of Murali Natrajan’s interview on CNBC-TV18
Q: Credit growth has not been a very uniform picture across banks at least at the end of the third quarter. What have you done by way of credit growth, loan growth and deposit growth? What accounted for this fairly decent net interest income (NII) growth?
A: The full year growth in advances is about 25 percent and deposits growth is 32 percent. We have not changed any strategy and have been consistently following the strategy for the last four years of focusing on SME, micro, small and medium enterprises MSME, corporate, agri-inclusive banking and retail mortgages. However, this year our growth in MSME and SME is muted. It is about 6 percent primarily because of the challenges that we saw in the environment. We reshaped the strategy within the SME and MSME.
In terms of customer deposits, we continue to perform strongly. Our CASA grew by 12 percent, savings grew by 15 percent and the total deposits grew by 32 percent thereby achieving 30 percent growth in our balance sheet year on year.
In terms of net interest margins (NIMs), we started focusing on doing priority sector lending more directly rather than relying on portfolio buy outs, that has improved our yield. We have also raised capital in March 2012 which has helped. We maintained our yield on advances and controlled the cost of deposits. All that led to a slight uptick on our NIMs. Even yield on securities was slightly better than last year.
Q: Can you improve your NIMs from the current 3.52 percent in FY14?
A: 3.52 percent was the last quarter number and full year number was 3.34 percent. I don't think it is possible to increase the NIMs. We will try to operate in the corridor of 300-325 bps. I would be happy if the NIMs don't slip. The idea is to create a portfolio mix such that the risks are diversified at the same time NIMs are protected.
Q: Gross non-performing loans (NPLs) down 8 percent quarter on quarter that is a substantial fall. Have you not provided more and tried to bring down your net NPL as well?
A: If you compare our provisions from last year to this year, last year provision was Rs 29 crore and this year it is Rs 24 crore. So there is a drop in provisions. In the last quarter of this year, we provided Rs 3 crore, Rs 2 crore for standard provision and Rs 1 crore for floating. So, there has been some buffer created on provision.
The slippages in the last three years from the gross advances have been in the range of 1.4-1.5 percent. This year we had a slippage of about Rs 75 crore from the opening balance and we had upgrade of about Rs 36 crore. The environment is pretty challenging, lot of hard work is going into making sure that non-performing assets (NPAs) are in control and we need a bit of luck as well in this kind of environment.
Q: You choose not to provide and bring down your NPLs by the same basis points that your gross NPLs have fallen. What is the provision coverage then?
A: The provision coverage is right now at 85.71 which is one of the strongest provision coverage. It was 87-88 previous quarter. Our idea is to keep the provision coverage always above 80 percent.
Q: Can you update us on the kind of restructuring pipeline?
A: The total restructured book that we have is about five accounts and Rs 30 crore. We are very strict about doing restructuring. This quarter we had two loans, one in corporate fully secured at about Rs 9 crore, another SME-PSL type of loan at about Rs 16 crore which we restructured. Our total restructured book as it stands today is five accounts and Rs 30 crore. So we have a very limited restructured book.
Q: Are your slippages Rs 75 crore for the year?
A: If you look from start to the end of the year, it was Rs 75 crore and upgrade and recovery was Rs 36 crore.
Q: Do you see a falling trajectory? What was the slippage in the last quarter? How are things likely to move in the current quarter?
A: In every quarter we have some slippages. This year, much of the slippages came from SME, MSME and that is why six-seven months ago we reduced our focus. For example we were doing Rs 7-8 crore type of SME loans, we reduced it to Rs 2-3 crore SME loans, insisted more on collateral and cash flow that is primarily because we saw there are lot of challenges developing in the environment.
Looking at the book, our retail book is in good shape. There are some challenges here and there in SME book, corporate book seems to be in good shape. Lot of hard work is going into maintaining the credit quality and we will need a little bit of luck in this kind of environment to keep the book intact. But I don't see a major problem going forward.
Q: What was the Q4 number? Will it be lower in the current quarter or will the year itself be lower than last year?
A: We had about Rs 75 crore slippage for the full year so all this has been uniform in each of the quarters, so it will be around Rs 15-16 crore every quarter. Looking at the next two quarters, the slippages are unlikely to increase and we would continue to have some slippage and some recoveries and upgrades. However, overall, our gross NPA will still come down by the end of next year.
Q: What is your estimate for FY14 credit growth?
A: We are targeting 25-27 percent growth in balance sheet with 25 percent growth in advances and similar growth we had this year on deposits