May 14, 2013, 09.02 AM | Source: CNBC-TV18
Ananda Bhoumik, India Ratings & Research is of the view that the NPL for PSU banks may see a peak in March or June and then a gradual reduction thereafter.
Ananda Bhoumik (more)
Sr Director, India Ratings | Capital Expertise: Equity - Fundamental
However, it is difficult to predict the timing of these NPLs because for banks, which have higher concentration of loan books, even 3-4 accounts going bad could impact their NPL. But the NPL story is probably playing itself out, he added
Below is the verbatim transcript of his interview on CNBC-TV18
Q: Dena Bank is consistently known to maintain its asset quality in the past but has now come out with a significant worsening this quarter. What trend have you noticed in terms of the oublic sector undertaking (PSU) banking numbers in terms of asset quality and what would your call be on something like Dena Bank?
A: The results of the PSU banks so far have been mixed. Generally we have seen a slowdown in (NPL) accretion, so that is a positive. However, we should keep in mind that banks such as Dena Bank has significant amount of concentration on their loan book, which means that if three or four accounts go bad then its impact on the Non-Performing Loan (NPL) is quite significant. Because of that lumpiness, it becomes a bit difficult to predict the timing of some of these NPLs.
Generally, the numbers are getting close to a normal which is between a band of 3 and 5 percent of gross NPLs. Our sense is that for the system the accretions have started to slow and therefore we would probably see NPLs stabilising over the next couple of quarters.
We may see one or two banks surprising us on the downside, which means that their NPLs maybe higher.
Our view is that we may perhaps see a peak maybe in March or in June and then a gradual reduction thereafter. The reported gross NPL number is probably getting played out.
Q: The reported NPL number that is clearly showing a decline especially in big banks like Punjab National Bank (PNB) and Union Bank as well. If you added the restructured assets, one does not get that comfort. For PNB in particular restructured assets were substantially higher in the fourth quarter compared to the third quarter. So if you took a more qualitative view and not just a numerical view, would you still believe that March would be the worst quarter or do you think we have still two-three quarters to go, if you also looked at the restructured assets?
A: That is precisely the reason why we are a bit hesitant to blow the bugle and say the worst is over. Clearly, that is not the view of our corporate group, so most of the lenders are still getting impacted.
As we had said the trend is that margin erosion is probably slowing down and probably we are at the bottom. The recovery is painfully slow, but there would be a lagged impact. I fully agree with you that the worst is probably ahead of us, not behind us and that is the lagged impact.
Restructuring is also more than half the scenario and that is not getting reflected in the reported numbers.
Overall, there will be a profit and loss (P&L) impact and credit cost will probably remain high for the next year as well. But the NPL story is probably playing itself out.