Tough times, but will deliver as promised: BoI

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SBI has declared the loan to Kingfisher as NPL. N Seshadri, executive director, Bank of India spoke to CNBC-TV18 about his expectations of the airline and what his stand is on the credit given.

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: How much has had to be declared as a non performing loan?

A: I won't at this point in time share information. It is all in the public domain that exposures of major banks are quite substantial. Yes, I would confirm that the interest on loans has not been serviced as of December, and that would definitely be a problem as far as most major banks are concerned including Bank of India.

Q: If Kingfisher were to make good of their dues would you or the consortium look at lending further or since it's already become substandard you all will be vary of doing that?

A: We have made it very clear during our discussions that we would definitely help in financial restructuring, provided the account continues to be NPA. Second restructuring was because we wanted them to honor the terms of our restructuring, and servicing of the loan was a very important thing. Considering it as an NPA is something which we have no discretion over; we have to do that. Definitely we will be working with them to see how we require over dues and still support the company, as a growing business, they need support and we will definitely do that.

Q: Can you come on the conditions continuing support? Provided they continue to service the loan- is that one of the conditions?

A: Absolutely. In fact, ultimately banks have been lending and banks are required to be serviced. If there are cash flow issues in terms of repayment of term loan, we can definitely have a look at it in terms of restructuring, provided the earlier restructuring terms are still met and we continue to get interest serviced.

Q: What is still to be met in terms of earlier restructuring?

A: Equity infusion was a major term which we are discussing, and that is very critical. Banks had taken equity by way of conversion, and I don't think we are very keen to further increase our exposure.

So we would expect the company to meet the commitment in terms of equity exposure and continue to service loan. We are trying to look at the business plan and see how we can support the company.

Q: Do you fear that in the quarter gone by, some more accounts like KFA would have gone into the NPL category especially in power, in infrastructure and airlines itself?

A: We do have a bit of liquidity strain coming in most of the sectors. Largely, I will quote out two major factors - one is contraction of demand. Even a 5% contraction in demand also will have a significant impact on the cash flows. Secondly, the interest rate increase which was not contemplated at a time these projects were conceived. On account level, we have discussed and wherever there is a requirement in terms of restructuring the loan within the overall ambit of restructuring the loan proposal, we have done that, and definitely there is certain amount of impact.  But again, we have taken the restructuring and up gradation as a major step in the bank. I think this exposure having restrain portfolio has impacted, and we are definitely geared up to meeting those challenges.

Q: Your gross NPLs you told us would stabilize around Rs 6500 crore even up until Q4. That was the level which you reported on September 30th. Are you still confident that that will be possible or has the slowdown and the problems you referred to- interest rate hikes and slowdown- made that a bit challenging?

A: We are very much within that because we have also factored these loans in our estimation. I must say that in fact the recovery has been quite robust, especially in small accounts. Not withstanding the problems in this type of sectorial problems overall, we are very much there where we promised.

Q: What is your take on the agri-NPA situation? Recovery is there and could that side of the business be supportive in Q3?

A: Yes. In fact, we have substantially recovery and our bank has done extremely well in terms of recovery of agri-loans. That is a redeeming feature as far as recovery is concerned in this quarter. We see that getting stabilised as we go along the next quarter also.

Q: How much may the restructured book increase by the end of the year and therefore how much will provisions go up by?

A: I don't have a number at this point, but there has been a number of loans getting into restructuring, especially the large ones; retail for example. There has been definitely liquidity strain, and we have really evaluated the business. Of course 2% additional provision would definitely put a strain on the bank, but in terms of net present value, we have readjusted the rate of interest also and we have negotiated on a case-to-case basis terms. I won't quantify when the numbers are getting reviewed. I would say that these types of provisions are well within the capability of the bank in terms of overall profitability, would definitely be a strain but would not get substantially hit.

Q: Can you give us some number on how much might the recovery be in the current year and what may be your upgradation target?

A: I think this recovery happens on quarter on quarter basis I can give you overall for the entire year. What I said the net position at the end of the year would be substantially at the same level or marginally lower than March level.