See lower incremental slippages for banks: ICICI Direct

In an interview to CNBC-TV18, Kajal Gandhi, ICICI Direct says, if the promoter contribution goes up then in that case banks’ haircut contribution may slightly go down in the P&L. "That will definitely help them on the profitability side," she adds.

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She expects lower incremental slippages in Q1FY13 for banks. "In the coming quarter, I believe that we will not be seeing the same pace of slippages that we have seen in the Q3-Q4 for most PSU banks," she asserts.

Below is the edited transcript of her interview with Mitali Mukherjee and Reema Tendulkar. Also watch the accompanying video.

Q: All the proposals, which have been put forth by the bankers to the Reserve Bank of India (RBI) and the government, if these new proposals on corporate debt restructuring (CDR) are accepted as it has been put right now, how much relief can we expect in the number of CDR referrals which the banks get?

A: It is not possible to quantify separately. But yes, if we look at from the bankers’ perspective, they have to take a considerable hair cut also in several of these CDR cases. If the promoter contribution goes up then in that case their haircut contribution may slightly go down in the P&L. That will definitely help them on the profitability side.

Though more number of CDR cases are bound to happen, we would see that incremental slippages that we have seen in the past few quarters may not be repeated in that pace.

Q: Which banks are more vulnerable to this kind of CDR pressure, especially amongst the PSU fraternity?

A: If we look at the recent quarterly numbers, we have seen Punjab National Bank (PNB) being one of the larger players which has shown a large number of this kind of CDR cases in restructuring. Even parting the Air India and the other SEBs, the amount was quite large in the case of PNB.

We have also seen such a case happening partially with SBI and a few of the other PSU banks like Central Bank , Bank of India . Bank of India is relatively better off. But even Bank of Baroda (BoB) this quarter has given such kind of numbers. So, we think all these players, who have done good amount of restructuring, have some more asset quality issues and may have to see some more pain in the quarter coming.

Q: We still will be working with the old guidelines on CDR. In Q1 and Q2, do you expect incremental problems coming-in in terms of slippages and even in terms of the restructuring proposals for the banks? Is the asset quality going to get worse in your opinion in at least the first half of this fiscal?

A: Restructuring, the number can keep on increasing for a good amount of time. That is why there are discussions on how these issues need to be tackled. RBI is considering about the provisions of these kind of restructured assets.

On the slippages side, in the coming quarter, I believe that we will not be seeing the same pace of slippages that we have seen in the Q3-Q4 for most PSU banks. We should be looking at something lower in terms of incremental slippages. If the number was Rs 5,000 crore in the Q4, maybe it will be lower Rs 3,000 crore in the Q1 coming forward.