May 07, 2013, 10.24 PM | Source: CNBC-TV18

Allahabad Bank labels Orchid A/c as NPA, eyes recovery soon

State-owned Allahabad Bank on Tuesday (May 7 2013) announced its fourth quarter earnings. It posted a 68.5 percent decline in net profit at Rs 126.15 crore on account of rise in bad loans. However company’s non-performing assets (NPAs) have increased by about Rs 1,600 crore.

State-owned Allahabad Bank on Tuesday (May 7 2013) announced its fourth quarter earnings . It posted a 68.5 percent decline in net profit at Rs 126.15 crore. Company’s non-performing assets (NPAs) increased by about Rs 1,600 crore.

The reason for the jump were nine accounts, which together added Rs 1600 crore to Q4 asset quality stress, Shubhalakshmi Panse, chairman & managing director, Allahabad Bank told CNBC-TV18.

She also informed that the bank's  Orchid Chem account has been classified as an NPA. "There are some 18 banks involved and out of this one bank did not give clearance as money was not distributed and thus the account became NPA," she says.

Below is the verbatim transcript of his interview to CNBC-TV18

Q: These numbers are a bit disconcerting. Your gross non-performing assets (NPAs) have increased by about Rs 1,600 crore, from Rs 3,500 crore they have gone up all the way to Rs 5,100 crore. What happened? Was it one big slippage? What was the fresh slippages and where there any big accounts?

A: Yes, there have been fresh slippages in the last quarter because most of these accounts, companies were waiting for corporate debt restructuring (CDR). So, they let the accounts become NPAs.

The big accounts with us is Kemrock Industries Rs 471 crore, Sterling Industries Rs 240 crore, Surya Vinayak Rs 314 crore, Orchid Chemicals Rs 230 crore, Websol Industries Rs 70 crore and the list goes on. Nine accounts have added Rs 1,600 crore to the NPA in the last quarter and that is the reason for the sudden jump.

Q: What will you do with them? We would like to know whether there will also be more such in the current quarter?

A: Some of the accounts are going into the CDR. That’s why they waited and they have now gone for CDR because through it they would be now coming in and getting a restructured package. However, there are some accounts where they came to ask for CDR permission.

We came to know that a company’s total dues are Rs 53 crore, but the total hit the bank was going to take on diminishing face value was to the extent of Rs 21 crore. When we dug deep into the balance sheet we realised that last year the company had a profit of Rs 25 crore, this year they have declared a loss of Rs 125 crore.

So, when we asked them they said we have written off book debts to the extent of Rs 92 crore. So, for such accounts we are not agreeing for CDR and we will make it NPA and we will immediately go in for recovery procedures.

Q: I heard you say Orchid Chemicals. Could you tell us the total exposure and are you classifying that as an NPA, all of that?

A: It has already become NPA, Rs 230 crore because there are some 18 banks involved. I believe there is an investor who has already brought in money. However, the money has not been distributed by the bank with which it is deposited because the bank was waiting for clearance from all the banks.

Of the 18 banks, 17 banks have given the clearance, for one bank the money was not distributed. That is why the account became NPA. Once the last bank comes the concerned bank will distribute the money and this account will immediately come out of NPA.

Q: Let’s talk about your restructured assets that is Rs 14,875 crore. How much was added in this Q4?

A: It was is to the extent of Rs 1,970 crore.

Q: Which are the big accounts that comprise this Rs 14,870 crore?

A: Our largest share in the restructured assets during this year, which we have added is to the extent of Rs 8,522 crore, of this Rs 6,297 crore is from the discoms that means from Rajasthan, Uttar Pradesh (UP) and Haryana. So, they itself contribute to the extent of Rs 6,297 crore then we have Air India which has also contributed. So, these are some of the large accounts, which have got added.

I also have a huge exposure in iron and steel because there also Ramswaroop all these have been added into the CDR portfolio. Then Electrotherm is also added into that.

Q: Just a word on the net interest income (NII) as well. As we take your point on some of these NPAs, and they could be one-offs but even NII has fallen. That’s also something which hasn’t gone down too well with the market. What’s the primary reason for that?

A: If you look at the NII, I will just divide into two theories. The first reason is that our yield on advances has come down because we have reduced our base rate to 10.20 percent. From 10.75 percent which was last year to 10.50 percent and 10.20 percent in two tranche.

The second is interest reversal on account of fresh accretion of NPA has been to the extent of Rs 330 crore. So, this amount has reversed which has had an impact on the NII. We have also had to the rate of interest on the restructured portfolio. Taken together, all this has had an impact on the NII.

As far as the cost of deposits is concerned, cost of deposit even though we have tried to off load the bulk deposits, it does not come in tandem. It happens in yield on advances because only after the deposit gets matured then there is a reduction in the cost of deposits.

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