See credit growth at 18-19%, NIMs above 3%: Allahabad Bank

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See credit growth at 18-19%, NIMs above 3%: Allahabad Bank

In an interview to CNBC-TV18, sharing his outlook for 2012, JP Dua, Chairman of Allahabad Bank said the bank is hopeful to maintain NIMs at above 3%.

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In an interview to CNBC-TV18, sharing his outlook for 2012, JP Dua, Chairman of Allahabad Bank said the bank is hopeful to maintain net interest margins (NIMs) at above 3%. The bank has recovered Rs 700 crore so far, although Dua said the aim is to cross Rs 1,000 crorce by way of recoveries in FY12. Further, he said, "The expected credit growth is around 18-19%."

Meanwhile, taking about sectors, Dua also said, "I don't expect much exposure in agricultural sector." And, also expressed concerns over the SME sector delinquencies.

Below is an edited transcript of JP Dua's interview to CNBC-TV18. Also watch the accompanying video.

Q: What is the outlook for 2012 in terms of credit growth for the industry? Do you think the banking industry can see 14-15% credit growth after the tough year we have seen in 2011?

A: Credit growth in the first nine months has been around 15-16% and I am hopeful that since the busy season has started already; we will be able to clock around 18% to 19% of credit growth.

Q: What is your sense on non-performing assets? The kind restructured loans you have already seen and the progress going forward, do you expect to remain at current levels or could there be deterioration as many accounts to give up because of high interest rates at the moment?

A: The four major sectors of the economy are affected - aviation, textile, steel and telecommunication. We are not in a space of telecommunication and aviation, we hardly have any exposure. Our exposure is into steel and textile. So far, we have received only proposal for restructuring in textile. We have not received any proposal for restructuring in any other sector as far as these four are concerned.

Our worry is relating to the economy which is affecting the real sector like coal prices have gone up, freight rates by the railways have been increased by 6% across the board which is affecting all the sectors. We are one of the major financiers of SMEs and they are affected directly because of rupee depreciation because of increase in freight rates, because of increase in commodity prices mainly coal and steel.

Q: Which is the most stressed sector that Allahabad Bank has exposure to that would impact asset quality in the quarters to come?

A: I am worried about the SME sector where there maybe little higher delinquency. The positive side is the monsoon has been good, so agriculture advances will not pose many problems because this year has been a good monsoon and our exposure to agriculture sector directly is around 13.5%, hence, I do not expect much NPAs in agriculture sector this year, maybe some delinquencies in SME sector.

Q: So, in terms of quantum you are sitting on gross NPLs of 1.8%. What kind of a rise do you see in NPL's going ahead?

A: Our target is mainly that fresh addition should be least and we recover as much as possible. Last year 2010-11, our recovery has been very good Rs 929 crore, similarly up to now we have been able to recover around Rs 700 crore and hopefully, we will be able to cross Rs 1,000 crore mark this year. So, even NPAs are balanced by robust recoveries.

Q: How do you think cost of funds are going to pan out in the second half of this year and consequent to that what kind of NIMs will you be able to maintain in this calendar year 2012?

A: Costs have also gone up at the same time we have been able to pass on some cost to the borrowers as well. So, we hope to maintain a 3% plus.

Q: While NRI deposits are not of significant chunk of what the bank hold in terms of deposits, you have hiked NRI rates. What is the outlook on that, how much of a small hit could it take on NIMs and could this get into more aggressive mode where many banks have to hike beyond what's already been done?

A: NRI is one segment where we expect good growth and since RBI has liberalised and made free so we have also increased our rate of interest on NRI at par with the other deposits. Hopefully, we will be able to get large chunk of NRI deposits also and our marketing team is making efforts to popularise the products that we have. Hence, we hope to garner a good share of NRI deposits.

Q: After almost two years, we have seen the first of your peers Union Bank of India cutting rates last week. Do you see many other banks going ahead with that as rate stabilise?

A: Coming to one specific bank which has cut the rate by few bps, it's a symbolic thing but the rates are going to stabilise for sometime before we start thinking of reducing the rates because costs have not gone down as yet. I don't think in the coming quarters cost will come down in banking industry or our bank. I don't think costs are going to come out that sharply to enable us to reduce the rates immediately. We hope in Q2 we may be able to take a call on this.