Vijaya Bank targets annual NIMs of around 2.8-2.9%

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Vijaya Bank's net profit improved by 41.5% to Rs 203.53 crore for September quarter (Q2FY12) against Rs 144.30 crore for the comparative previous quarter. Net interest income (NII) for Q2FY12 stood at Rs 512 crore agianst Rs 487 crore, on a year-on-year basis.

Public sector lender reported a robust performance on cash recovery and up-gradation front in the September quarter on the back of completion of system driven identification of non performing asset (NPA).

HS Upendra Kamath, chairman, Vijaya Bank speaking to CNBC-TV18 about the financial performance of the bank said that it has been able to do relatively well in Q1 and Q2 and is hopeful of containing non performing liability (NPL) at manageable levels ahead.

Its net interest margin for the quarter stood at 2.72% versus 2.32% quarter ago (Q-o-Q). "In our annual guidance mentioned that we may be in a position to sustain NIMs at around 2.85% to around 2.95%, vis-à-vis 2.32% in Q1 and 2.72% in Q2, Kamath said.

On an annualized basis, Vijaya Bank is hopeful of maintaining NIMs around 2.8% to 2.9% .

Below is the edited transcript of Kamath's interview with CNBC-TV18. Also watch the accompanying video.

Q: What is your sense about the manner in which bad loans in the bank will progress? It was a fairly good performance from Vijaya Bank, you saw a QoQ fall in gross NPLs and net NPLs in Q2. Is that something that the bank will be able to continue?

A: It is true that in Q2 we have been able to successfully bring down both gross NPLs as well as net NPLs in absolute and percentage terms. This is because the bank had already completed system driven identification of NPA. There was some spillover effect in Q1 but in Q2 the performance on cash recovery and up-gradation front has been quite robust.

Therefore over a six month period we have added only about Rs 125-130 crore to the gross NPL numbers compared to March. Given what is happening in the industry today, this kind of performance can be considered as quite good and satisfactory performance.

We have to wait and watch how things pan out in Q3 and Q4. But given the fact that we have been able to do relatively well in Q1 and Q2, I am hopeful that we should be in a position to contain NPLs at manageable levels.

Q: Do you keep track of how much of gross NPLs actually recovered? What is the visibility on NPLs? We are going through a down trend in the economy atleast a slowdown. That would mean SME loans could be pressured, capex cycle is no quite what people would like it to be. Do you think the NPL picture will get a little difficult because of that in the second half?

A: With regard to Vijaya Bank per se, total slippages in six months period, commencing April 1 to November 30 was to the order of Rs 1,067 crore. Out of this, we have recovered about Rs 250 crore in cash, up-gradation about Rs 620 crore. We have written off prudentially a small amount of Rs 80 crore. Net-net we have added only Rs 122 crore to the gross NPL.

This is the actual numbers of gross slippages vis-à-vis the cash recovery, up-gradation and prudential write off. In general there has been some amount of stress on the quality of assets. That is not necessarily on account of higher interest rates alone. It has got lot to do with other input costs increases, moderating domestic demand, weak global scenario etc.

Interest cost is one of the many inputs that go into cost dynamics. I personally feel that there is no need for any undue concern on quality of banking credit assets. The recovery and up-gradation systems are in place. The spike that we have seen in the NPAs is partly because of system driven NPAs. You will recall that as of March only three or four banks had completed this. Most of the banks had sought additional time till September 2011.

It has partially gone up on account of identification of NPAs through the IT system and partly on account of economic downturn and reasons related to higher interest costs. But one should admit and acknowledge that there will be some amount of stress on the quality of assets as we go forward.

Only those organisations where systems, procedures, infrastructure is put in place to ensure speedy recovery, early identification of stress signal and taking timely corrective actions, will be a in a position to contain slippages and show better performance on the quality of assets.

Q: On the NIM front you delivered quite decently, 2.72% versus 2.32% in the quarter ago, so 40 basis point improvement. You think margins are likely to stabilizs around these levels?

A: Our NIM in March was 3.04%. In our annual guidance we mentioned that we may be in a position to sustain NIMs at around 2.85% to around 2.95%, vis-à-vis 2.32% in Q1 and 2.72% in Q2. On an annualized basis, I am hopeful that we will be in a position to maintain NIMs around 2.8% to 2.9%.

Q: How much will you end the year with in terms of a loan growth?

A: As far as the first six months which we have just completed is concerned, our loan book grew largely on account of pipeline sanctions at 10% and  annualised it is 20%. But on a full year basis I am hopeful that our credit growth will be between 17-19%.