See additional slippages of Rs 1K cr in next 2 qtrs: BoI

In an interview with CNBC-TV18, BA Prabhakar, ED of Bank of India, spoke about the latest happenings in his company and sector. 

Below is a verbatim transcript of the exclusive interview with BA Prabhakar on CNBC-TV18. Also watch the accompanying video.

Q: The one thing which people didn’t like about your numbers was the fact that your asset quality worsened quite significantly––lot of restructured loans turned to non-performing assets (NPAs). You almost saw a 40% jump in your non-performing loans (NPLs). Could you take us through why that happened and whether this is a one quarter phenomenon or is going to be a lingering problem for your bank?

A: Yes, we had some problems with some of our loans. We had restructured almost Rs 6,500 crore of loans as on June 30 and some of those accounts that we had restructured could not service the interest. Hence, we had to classify some of those accounts as NPAs. So we had almost Rs 1,400 crore of slippages in Q2––Rs 800 crore related to the restructured accounts. So we may have some problems, maybe, going forward in the next two quarters also. In fact, we had told the analysts that there could be some slippages happening. So probably we will have some issues with regard to asset quality until March 31 of next financial year that is March 2010. Thereafter, we see these assets getting upgraded and then we will see a turnaround happening there.

Q: The other worry was that provisioning had gone up so sharply, it is at 600 crore versus 286, what kind of pressure are you expecting to see on your NPAs or on your NPLs?

A: The provisions not only included NPAs but also had a substantial increase in the tax liability. There was also an increase in the depreciation on our investment portfolio. So we provided almost Rs 140 crore on our investment portfolio. Our tax liabilities went up because some of our foreign branches had absorbed losses earlier. Now they have recouped all those losses, so they are again liable for taxes. Collectively, we had an increase in depreciation on investments, we had increase in tax liabilities and also we had increased provisions per NPA. So together we have seen a quantum jump in the provisions.

Q: Beside all of that even the net interest income (NII) growth was very sluggish this quarter; it was up just 3%. What kind of NII growth are you pointing to for the next couple of quarters at your bank?

A: On the contrary, the NII is growing on our domestic book. We had an NII of almost 2.4% in March. Now we have moved upto 3.08%. So we are seeing the margins growing from March to June, June to September and we see that it is going to grow again upto March 2010. So we will come back to our earlier margins by March 2010 but this will be gradual. We will see some growth in net interest margin (NIM) in December quarter also. The NII is also growing, if you see sequentially, it has grown by almost 8% between June and September. So our basic core of banking operation continues to be strong. We have seen an increase in operating profits over the last quarter. The main reason why the profit has declined is because of the provisions per NPAs.

Q: On the issue of the asset quality once again, could you tell us which accounts are proving to be the bigger problems for you? What resulted in this Rs 1,400 crore slippages in the current quarter and if you could quantify how much further slippages you expect between now and March 2010?

A: I may not be able to give you the names but I can give you the sector. Mostly it is related to the export sector. We had slippages in diamond exports and in some small and medium enterprises (SME) accounts, which is not very significant. It is the export sector which gave us some problem.

Q: Would there be another Rs 1,500–2,000 crore kind of slippages?

A: We are expecting another Rs 1,000 crore slippages to happen before March 2010.

Q: You don’t think there is any further slippage to happen?

A: No, that would be the maximum that we may have. It is depending on the signals we are getting now. Going forward if some of our customers expect problems then it will be a different situation.