Exposure to HDIL limited, says BoI ED

Bank of India which came under focus over its exposure to realty developer HDIL, said it was of little concern. N Seshadri, ED, Bank of India told CNBC-TV18 that their exposure to HDIL is very limited.

"Our exposure is very limited and we do not see much of a concern at this point of time because there has been servicing. We are looking at the portfolio very closely, although at a very small portion of a percentage of that overall exposure. It is not significant, but we do have some concern in terms of delayed servicing of interest," he added. Credit rating agency CARE had downgraded the Non-Convertible Debentures (NCD) of Housing Development and Infrastructure (HDIL) citing delay in servicing debt obligations. Here is the edited transcript of the interview on CNBC-TV18. Q: We saw CARE ratings downgrade the Non-Convertible Debentures (NCD) of Housing Development and Infrastructure (HDIL) and we heard that Punjab National Bank (PNB) was not paid the interest on the NCDs that it holds. You are also a loanee to HDIL. Have you had any problems of late payments? Is the loan itself in danger of getting into Non-Performing Loan (NPL) status?
A: We have been seeing some amount of stress on this sector in terms of meeting the commitments, largely because of the inventory which is not getting cleared as envisaged and there are definitely interest rate issues. There is strain. There has been some amount of delays if not outright defaults. 
As far as ratings are concerned, definitely there has been downgrading which is happening across the borrowers in the sector, largely on account of the concerns in terms of outflow. Q: It is a default status. CARE Ratings has given them a D rating compared to BBB plus which they enjoyed earlier. That is a one-shot steep rating downgrade. Do you hold any of those NCDs?
A: Another rating had also reduced it to default even a couple of months back and now it has been confirmed by another agency. We have seen default rating confirmed on the borrower that you had mentioned. Our exposure is very limited and we do not see much of a concern at this point of time because there has been servicing.
We are looking at the portfolio very closely, although at a very small portion of a percentage of that overall exposure. It is not significant, but we do have some concern in terms of delayed servicing of interest. Q: Do you expect the stress in the real estate sector to worsen in the next two to three quarters?
A: I do not think so. Most of our exposures are on real estate pertaining to housing and we have seen a reasonable amount of demand getting met and there has been some slowdown. But, with the interest rate also stabilizing and slightly moving, we have seen the housing loan demand going up.
We do not see defaults happening in terms of projects essentially if it is confined to financing the housing loan segment. We do not have much of an exposure in terms of commercial real estate per se. Q: Could you tell us what proportion of your real estate exposure is under stress? Is it just a marginal amount or majority of your real estate exposure is under stress? Is it just one or two developers or is it like a sector-wide story?
A: It is very marginal. Our real estate exposure is very, very insignificant against the overall exposure. A majority of it is under the housing loan segment and we have not seen the strains in that segment. I see very minimal effect in our books in terms of the strain in this segment.
_PAGEBREAK_ Q: Under Reserve Bank of India (RBI) rules all restructuring done from next financial year will have to be provided for to the extent of 5 percent. Have you witnessed increased cases of restructuring by March 31?
A: Restructuring does not happen in a week’s time or in 10 days. You will see the strains happening over at least a full quarter or even earlier than that. Typically, in restructuring, the cutoff date happens at least a couple of months prior to that. So what was to be restructured has happened and as I said earlier, there has been some thinning down of restructuring, specially the larger ones.
I do not see the cutoff date of April 1 for additional provision would be a trigger for many restructurings to come. I did not see the evidence of the number of loans on restructuring going up on account of the deadline of April 1. Q: In your case, will restructured assets in the fourth quarter not be higher than that in the third quarter?
A: Yes. By a large amount it has come down. It will be lesser than that. Q: What about slippages?
A: Slippages have been under control. We do not have a big concern on slippages. There has been some amount of recovery and then we are moving towards it. It will take a couple of quarters but, it is well under control. Q: On both these counts, is it a little better, will the numbers on restructuring and slippages be lower than that in Q3? 
A: That is what we had indicated and we are moving towards it. Q: Any new sectors which are under stress in the last few months?
A: We have shared segments which are under stress. We had seen steel which is a major sector, textile is another. That is why we see a large amount of restructuring coming in from those segments. By and large, there has been a consistency, there is predictability in terms of where stress was actually and we have been addressing it.
The number of loans coming for restructuring is definitely much larger than our comfort level but, that is a function of the economy. If there is a downturn in the economy, I don’t think banks will be immune to the type of stress which is getting passed on. However, I think it is manageable and under control. Q: This may not be directly under your charge because it appears that Canara Bank, Punjab National Bank (PNB) and Oriental Bank of Commerce (OBC) are more in charge of the power discoms. But, have you heard of any road blocks in the negotiations for that bailout package which the central government had proposed, especially with respect to the three states which were supposed to be ahead, the likes of Rajasthan, Haryana and Tamil Nadu which were ahead in the bailout discussions? Are there any fresh problems that they are encountering from state governments?
A: March 31 is the given deadline. Although, we do not have a direct exposure in this, some way out will be found as we go forward in the next couple of days before March 31. Let us wait and watch. I don't think there is any major development that we have heard on the reforms on these discoms. Q: What about loan offtake? I think the last year to date number that we got from the RBI was still fairly pathetic, it was around 11 percent or thereabouts. Do you think this sector will get a fairly decent credit offtake for the full year?
A: RBI was on record saying that there is going to be 14-15 percent offtake for the full year and definitely the last month and quarter end consideration will push some credit. Yes it will be closer to the region of about 14-15 percent but not more. Credit growth has not been to the extent expected, it is marginally lower than what was predicted. Q: Since you are facing a little bit of stress in your real estate exposure you must have spoken to the developers to make good the delayed payments from them. Have they indicated that or are they looking to cut prices? They are sitting on real estate residential inventories or they are just waiting for the markets to pick up and then the delayed payment issue does not come through?
A: We have been talking to them. The market rates are aligned to their own costing. Inventory basically adds up to the cost. The promoters definitely are quite conscious that you offer discounts which would cut down your holding cost. There has been downward moment. It is not that they are not alive to the market situation.
Interest rates has been hurting some of these projects and some restructuring has been talked about, although nothing really is happening because ultimately the moment you restructure they become an NPA. That is one of the reasons why we did not see much of a restructuring happening in the real estate sector.