See margins over 3.5% in FY12: Allahabad Bank

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See margins over 3.5% in FY12: Allahabad Bank

In an interview to CNBC-TV18, JP Dua, chairman of Allahabad Bank says, he expects margins of more than 3.5% and a credit growth of around 18% for the full year.

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Excerpts from Midcap Radar on CNBC-TV18 Watch the full show » ALSO READ See latest News about Allahabad Bank See previous management interviews See what other Experts & Brokerages are saying about Allahabad Bank Allahabad Bank BSE | NSE 29/05/12 Are Mutual Funds betting on Allahabad Bank?

In an interview to CNBC-TV18, JP Dua, chairman of Allahabad Bank says, he expects margins of more than 3.5% and a credit growth of around 18% for the full year.

Dua further says, the government has approved Rs 1,000 crore capital infusion. "We have also approached Life Insurance Corporation of India and they have agreed capital infusion of up to 5%," he adds.

Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Gautam Broker. Also watch the accompanying video.

Q: Can you tell us what the game plan is? How much has LIC agreed to invest in? What kind of shares will they get? Will there be any equity dilution?

A: We had approached government for additional capital because our capital as of date, Tier I, is 8.5%. It was expected that by March 31 credit growth will come down to 7.20%. We had approached government for about Rs 1,000 crore infusion, which it has agreed. I am just waiting for final nod.

We have also approached Life Insurance Corporation of India and they have agreed capital infusion of up to 5%. Today, our board has approved for both. We are going to the shareholders. We are calling an extraordinary general meeting for raising the capital.

Q: With the government infusion and the LIC money in place, how well capitalised would you be? Would that suffice your needs at least for 2013?

A: We hope that our Tier I capital will go to around 8.9% or maybe 9%. We will be comfortable atleast for the next one year.

Q: What are the other plans you have?

A: It depends upon the credit growth we have. Credit growth, year-on-year, is coming to around 16-17%. We hope to close the year with a credit growth of around 18%.

Coming to the 2012-13, depending upon the economic environment, we would like to grow a little better than what we have grown this year. With the credit growth of little better magnitude, we need more capital also.

Q: This 9% capital adequacy will suffice for what kind of credit growth next year? If you do grow at even the current year's pace, you may need capital even before FY13 is over, isn't it?

A: Yes, you are right. But this 9% is not capital adequacy, 9% is Tier I capital. My capital adequacy will be well above 12%. I hope, going forward, good internal accrual will also help me a lot. But then if need be, I have a headroom also.

Also, the government holding will go up. Today, it is 58%, it will go to some 59.5%. There is an option available in time to come and the way scenario develops, I think we can raise further capital also.

Q: Asset quality, 60% of your slippages actually came from the small ticket loans in the priority sector lending area. We had yesterday report from Mr. MV Nair on the same. What are you making of what he had to recommend? What RBI will finally implement of all of that?

A: We are one bank which is giving loans in a big way to MSC and agriculture. Our 40% plus is always agriculture and priority sector. Coming to NPA, you figures are right, out of Rs 1,885 crore, more than Rs 1,200 crore is less than Rs 10 lakh. But with all this, our recovery position is also very good in these areas.

In the first nine month, we have recovered about Rs 714 crore. In this quarter also, in the first 40 days, we have been able to recover about Rs 145 crore. So, recovery also is very good, though NPAs were a little higher as far as these areas are concerned. But, going forward, I hope we will be able to recover this full year more than Rs 1,000 crore. So, recovery part also takes care of these small loans also.