Jayarama Bhat, MD of Karnataka bank expects the FY14 net interest margin (NIM) to be around 3 percent on the back of its profit falling 19 percent.
Sharp rise in its employee costs dented Karnataka Bank's fourth quarter net profit that fell 19 percent year-on-year to Rs 67 crore. However, the bank improved on its credit quality front.
According to Jayarama Bhat, Managing Director of the bank, the lender intensively went to the recovery of the old non-performing assets (NPAs) accounts. It recovered Rs 459 crore which made the gross NPA come down from 3.27 percent to 2.51 percent.
"With the interest rate coming down and also our current account, savings account (CASA) has slightly improved terminally. Going forward, we have projected CASA of around 28 percent. This should give us a better benefit in NII and NIM also. We are targeting a figure of around 2.75-3 percent in NIM," he said commenting on interest rate margins.
Below is the verbatim transcript of Jayarama Bhat’s interview on CNBC-TV18
Q: Could you explain the employee cost figure because that has doubled and had some impact on your numbers?
A: Q4 numbers have slightly declined but on the whole, annual numbers, we have shown a good improvement in net profit, about Rs 102 crore. From Rs 246 crore, we have earned Rs 348 crore, a jump of 41.46 annual net profit numbers. Coming to Q4, there was a slight dip of around 19 percent. With regards to employee cost, we have provided fully for the wage revision impacts that will come.
We have provided around Rs 20-25 crore. Also, in all other areas we have provided the required amount as per actual valuation for pension and gratuity. So without these, we could get a very good increase in the operating profit for the entire year and it was around Rs 125 crore increases and about 24.53 percent in operating profits.
Q: There has been a strong improvement in your asset quality this quarter, what led to this improvement? What sort of slippages and restructured assets do you work with in terms of fresh additions this quarter?
A: As far as the asset quality is concerned, we intensively went to the recovery of the old NPA accounts and could out-beat the additions. We recovered Rs 459 crore which made the gross NPA come down from 3.27 percent to 2.51 percent. We have no worry as far as the restructured accounts are concerned. Restructured accounts have come down to Rs 1,224 crore as against 1,524 crore at the beginning of the year. Out of that, hardly Rs 100 crore are NPA. So the restructured portfolio is entirely under control.
Q: In terms of your NIM, how exactly did you do in terms of your NIMs this quarter because last quarter it came off for around three basis points?
A: NIM for this quarter is around 2.31 percent. Annually, last year it was 2.19 percent. NIM is in the increasing trend. Last quarter, it was 2.36 percent so it was slightly five basis points dip. But still there is another control and we are projecting a NIM around 2.9-3 percent by March 2014.
Q: Your NII growth is not looking that strong. It is Rs 221 crore versus Rs 215 crore in an environment where private sector banks in general have done quite well. Is this a bit of an aberration? Going forward, what kind of NII growth can we expect?
A: It is improving. The annual growth of NII has improved from Rs 732 crore to Rs 903 crore. It is an improvement of around 24 percent for NII in the last year. Going forward, with the interest rate coming down and also our current account, savings account (CASA) has slightly improved terminally. Going forward, we have projected CASA of around 28 percent. This should give us a better benefit in NII and NIM also. We are targeting a figure of around 2.75-3 percent in NIM.
Q: I didn’t get your exact slippages figure in terms of additions despite the recoveries being strong. Was there any incremental slippages this quarter, incremental restructuring quarter and what is the trajectory that we can expect on the asset quality going forward?
A: Incremental NPA in this quarter was around Rs 130 crore. Going forward, we don’t find any major accounts slipping into NPA in this quarter. As far as the restructured accounts NPAs are concerned, there are not much slippages except around Rs 30 crore slippages in a restructured portfolio for the entire year.