See global NIMs around 2.7-2.75% in FY13: Bank of Baroda

In an interview to CNBC-TV18, MD Mallya, chairman and managing director, Bank of Baroda says, going forward, one would expect the domestic net interest margins (NIMs) to be maintained at about 3.2% to 3.25%.

International NIMs, he says, have been around 1.5%. "Global NIMs have been around 2.73%. The guidance would be in the range 2.7% to 2.75% in the second quarter or maybe the current fiscal," he adds.

Below is the edited transcript of his interview on CNBC-TV18.

Q: The bank has seen an above estimate growth on the net interest income (NII) and profit after tax (PAT), but asset quality again weighing. What led to this deteriorating asset quality? What's the outlook going forward?

A: I would say that increase in the profitability is strongly driven by the increase in the net interest income. We have seen a NII growth of almost about 23%. Therefore, the operating profits have also increased almost by about 22-23% on a YoY basis.

Even if you look at it sequentially, over the Q4 of last year, the operating profits have shown a growth of almost about 10%. That is come out of core operations, as far as the bank is concerned. Now, looking at the net profit, last quarter last year we had the benefit of write back of the income tax refund and the write back of the investment depreciation. That is not available in the current quarter. Therefore, there has been a little bit of a need to make provisions, as far as these numbers are concerned. There was a negative tax provision made last time, this time it has been positive. Therefore if you look at these facts, I think the overall results can be considered satisfactory.

The absolute amount of the income tax refund write back and the depreciation and investment write back aggregate Rs 600 crore. Therefore, that’s a difference in terms of the net profit which would have been increased in the current year. So, overall, the numbers are good.

On the delinquencies, we have seen the overall delinquency in the current quarter much less than what it was in the last quarter, last year. So, therefore, there has been a sequential improvement in terms of degradation. I would expect the same thing to continue.

Even if you look at the restructured portfolio, the amount of asset restructured have come down very substantially from Rs 5,000 crore in the last quarter of last year to only about Rs 771 crore. It is a very positive indication that things have peaked already, as far as NPA and restructuring are concerned.

Q: Could you take us through the trends on fresh slippages? What is the amount of fresh slippages, amount of recoveries, and amount of upgrades?

A: As far as the delinquencies are concerned, in the current quarter, by and large these have been contributed by all the verticals, SME, retail, agri as well as the mid-corporates. The one important feature I would like to highlight is the fact that they are not been any lumpy accounts, large accounts which have fall into the NPA category. The positive out of that is that going forward the possibility of upgrading this or recovering these assets, a substantial portion in the next quarter, could be substantially better. This has been a normal trend in the previous years also. Whatever one has seen as degradation in Q1, especially in the agri front, gets recovered or upgraded in Q2 because of the cyclicity. I would expect the trend to continue in the current year. Therefore, that gives a lot of comfort that going forward in Q2, one could see incremental upgradation and recovery substantially in these segments.

Q1 recoveries have been almost to the extent of Rs 208 crore as against Rs 153 crore last year. The upgradation has been very strong about Rs 135 crore as against Rs 34 crore last year. Therefore, recovery plus upgradation in Q1 has been substantially better than what it was last year Q1 and the trend should continue in the coming quarters too. That would give a very positive impact in terms of the overall performance in the coming quarters.