Oriental Bank of Commerce (OBC) announced its third quarter numbers today. They were below the expectation. Net profit fell 7.8 per cent year-on-year to Rs 326.4 crore in the third quarter of financial year 2012-13 due to asset quality concerns. Net interest income increased 5.6 per cent to Rs 1,204.4 crore from Rs 1,140 crore during the same period.
The Q3 margins stood at 2.84 per cent as compared to 2.79 per cent quarter on quarter basis. In an interview to CNBC-TV18, SL Bansal, Chairman & MD, OBC said, "We are expecting that our margin in the next quarter will be much better. It should be close to 2.95 per cent".
He also informed that this quarter Rs 700 crore worth of assets have been restructured and now Q4 will see restructuring of Moser Baer. "We have not written off Kingfisher Airlines but it is very well on our books and we will recover our full money back", he adds.
Below is the edited transcript of his interview to CNBC-TV18
Q: You could manage to hold the margins at 2.8 percent in fact bettered it to 2.84, will that be the performance in the next quarter as well?
A: We are expecting that our margin in the next quarter will be much better. It should be close to 2.95 for next quarter and the year as a whole we expect that our margin should be close to 2.85.
Q: What about the asset quality, certainly you have held your quality now, about Rs 200 crore more in terms of the increase in the gross non-performing loans (NPLs), how would things pan out in Q4 or in next six months should we expect this number to steady?
A: One will appreciate during the last four quarters, we have been holding on our asset quality. We started our journey with 3.17 percent in the month of March. Now we are at 2.98 percent. We have been hovering around 2.92 to 2.98 percent during the last three quarters. We expect that we will be close to three percent hopefully. The economy will start reviving and few assets we expect from stress category will move to the standard category. Then hopefully we should be in a position to post better results from Q2 onwards of FY13-FY14.
Q: The recovery and upgrades are close to about Rs 400 crore this quarter because of the transition to the computerized asset quality mechanism. Do you think asset quality could be a bit volatile in terms of recoveries improving because a lot of payments come with a marginal delay?
A: In the beginning of the year, we have given a guidance that our slippages will be close to Rs 700-800 crore per month. In the first nine months our slippage is close to Rs 2,100 crore, which is as per our guidance. Simultaneously, we have given guidance that our recovery will be closer to Rs 170-200 crore per month.
In the first nine months our recovery and upgradation is Rs 1,520 crore, which is again an average of Rs 170 crore. So, I think by and large our guidance and recovery in today’s environment is very tough. However, we have been improving.
Our recovery last year for the first nine months was close to Rs 1,000 crore. Hopefully we will end this year by closer to Rs 2,000 crore recovery and Rs 3,000 crore slippages.
However, redeeming feature of our recovery is that we have been recovering a lot of money under technical written off account. A written off recovery of worth Rs 430 crore in first nine months has given us a boost. We have gone ahead for writing off few assets, so that we can maintain our asset quality.
Q: You reported Rs 714 crore restructured assets this time because of various bits and pieces of news. We were expecting that Moser Baer and the Punjab SEB would be restructured this time. A number of more than Rs 2,000 crore was what some investors were guessing, are these to hit in a Q4?
A: Absolutely, Punjab is still to approach us for restructuring. I think hopefully Canara Bank will be doing the restructuring on behalf of all the banks. Our exposure is about close to Rs 1,200 crore layers.
Moser Baer was supposed to happen in last quarter but MRA has been signed only two days back. So, this Rs 465 crore additional will happen in this quarter. So, hopefully there will be Rs 2200 crore worth of assets in the next quarter.
This quarter Rs 700 crore worth of assets have been restructured out of which Rs 460 crore repayments is coming. At present the repayment has come from Air India. Air India has repaid Rs 500 crore to us and that is why this restructured book looks flat.
Q: How much of Kingfisher do you think you have written off?
A: No, we have not written off Kingfisher. It is very well on our books. We have been maintaining that we will recover our full money back. So, please wait for some more time, we will get back our money.
Q: There is not so much that Kingfisher owns by way of planes, most of them were leases. The landed property is not much, at least nowhere near the Rs 7,000 crore of debt that the company has on its book. Personal net worth of the chairman, can you recover much from that?
A: Our advance is only Rs 54 crore. We are not part of that Rs 7,000 crore. Our advance is not for working capital, it is different. We have already initiated few steps and we are confident that our money will come back 100 percent.
So, we are not worried on that front, Rs 54 crore is the amount. Hopefully we are expecting that on January 31, we will recover our money. However, maybe another 10-12 days because company has asked for certain papers and documentary evidence and we have supplied them. Hopefully, we will get back our money.
Q: You have provisions at over Rs 600 crore this time. What was the reason? You had a tax write-back. Did you just nullify both of them a higher provision coverage because of the tax write-back benefit?
A: Our provision is Rs 600 crore. Out of that Rs 351 crore is the provision towards Non-Performing Asset (NPA). Our slippage is Rs 813 crore. Ideally 15 percent provision is to be provided for substandard assets and 30 percent for D1.
We have provided on an aggregate basis 43 percent. This is because we are strengthening our coverage always. Then additional provision provided is Rs 78 crore, to take care of this 0.75. That has been mandated by Reserve Bank of India (RBI). A provision of Rs 30 crore, we have provided for wage revision.
We are the only bank which has gone ahead and provided for the wage revision. So, with all this Rs 600 crore provisions tax write-back. That is because of two things, number one, in the first two quarters we have provided slightly higher and second some provisions were lying in the books which were not required. One disputed case has gone in our favour. So, that money was available to us for write-back and that is why a small write back of Rs 4 crore.
Q: Advances growth is just 5 percent QoQ. Rs 1.17 lakh crore was your outstanding at the end of September, now it is at Rs 1.23 lakh crore and YoY it is up 11 percent. Maybe it is very prudent banking at a time when the economy is going through a slowdown. How will growth progress and how long will we be in this barely getting into double digit growth in advances?
A: Our advances growth on YoY basis is 11.79 percent. We expect that when we reach March 31, then this growth will be closer to 15 percent. I am very confident because if our last quarter, last year was flat from Rs 110,000-112,000 crore. This quarter is not going to be the same quarter. We are growing steadily and hopefully we will be touching close to 15 percent growth in credit.
Q: What would be your sense of restructured assets? Will this quarter be the last of big people coming and asking you to revamp or do you think that problem will remain?
A: I think this will be the last quarter. All these three major assets Punjab State Electricity Board, Moser Baer and Suzlon which has already taken place will chip in this quarter. This is close to Rs 2,000 crore, maybe another Rs 100-200 crore here and there will continue.
However, hopefully major chunk will be over in this quarter. One good thing is that once this discom restructuring takes final shape then banks will be relieved to a large extent. Our total exposure is close to Rs 6,800 crore. Out of that Rs 1,200 crore is Punjab State Electricity Board and Rs 5,600 crore remaining out of which Rs 4,200 crore is restructured books.
So, Rs 4,200 plus Rs 1,200 will be equal to Rs 5,400 crore. If 50 percent of the loan is converted into bonds which is hopefully special security that is the guidance given to us so then our restructured book will remain flat.
Q: Will you have much headroom to cut deposit rates even if the RBI were to drop rates?
A: There are two parts. We are continuously dropping deposit rates. Last year at the same time, we were offering close to 9.75 percent on one year deposit. This time we are offering 9 percent. On three years and above we are offering 9.10 percent because of the Asset Liability Management (ALM).
We want that people should keep their money for a longer period. Hopefully by middle of February we have to look at three numbers very carefully; the policy on 29th, then budget and then two inflation numbers for December and January. If these three numbers come in tandem with the expectation of the market then hopefully interest rates will start showing downward strength. Also the deposit rate and the lending rate will fall.