Deepak Narang, ED, United Bank of India says that the bank has reduced corporate debt restructuring support to companies with low profitability to curtail the rise of NPLs. The bank is fully provisioned against its exposure to Kingfisher thanks to the RBI‘s permission which allowed the bank to make provisions over two quarters, he told CNBC-TV18.
Deepak Narang, ED, United Bank of India says that the bank has reduced CDR (corporate debt restructuring) support to companies with low profitability to curtail the rise of NPLs. The bank is fully provisioned against its exposure to Kingfisher Airlines thanks to the RBI's permission which allowed the bank to make provisions over two quarters, he told CNBC-TV18.
Below is the edited transcript of the interview on CNBC-TV18
Q: Did you announce the cut in base rate cut due to anemic growth in loans?
A: The base rate is a transmission of the monetary policy and the bank would gain due to the cut in cash reserve ratio (CRR). Of course, the bank would be impacted by Rs 80 crore because of base-rate linked advances. But the bank will make about 20 crore on the CRR cut. The volume of business is expected to increase and the bank should be in a comfortable position.
Q: Are you expecting a marginal impact on net interest margins? What are the net interest margins in this quarter and at what level are they expected to be in the next quarter?
A: I do not think there will be an impact. I think with volumes the bank should increase business and offset an impact if there is any.
Q: How much more rate-cuts do you think will come through rest of the year? Analysts' estimates have been lowered to as much as 7.2 percent for the ten-year bonds on promises from the finance minister and perhaps some delivery. Do you think if the Reserve Bank of India (RBI) were to cut the repo by an additional 75 bps this year, you will also be able to cut by a similar quantum?
A: The asset liability committee (ALCO) will decide on how much can be cut after examining the bank’s position. It is too ambitious to expect a 75-bps cut in this year. The bank will do its utmost to try and pass on the benefit to the customers.
Q: Regarding the bank's asset quality, the pressures were very obvious in the last quarter, with gross and net non-performing loans (NPL) rising 20 percent with gross NPL shooting up 4.4-4.5 percent. Will that stabilise in the current quarter?
A: The bank has tried to recover, restructure and make up for the slippage in accounts. Nevertheless there will be some slippage in this quarter because the bank has decided not to support the CDR schemes of companies which do not have much to show and there is little expectation of profitability.
Q: Will the NPLs rise by 20 percent?
A: I do not think much would happen except for one-or-two big accounts undergoing CDR which we have decided not to support. Otherwise in the normal course of events, the bank has decided to declare non-performing assets (NPAs) wherever it was necessary and based on what the RBI inspection has pointed out. So, the bank has been impacted in this quarter.
Q: If the bank does not support companies undergoing CDR, there will not be any need to make the 2.75-percent provision for the quarter. But in forthcoming quarters, the bank will have to provide 5 percent if it decides to support restructure. Would the bank have managed to save a little if the bank had supported restructuring in this quarter?
A: Yes, but nevertheless the bank would not like to support companies with no future and instead of just postponing NPAs, the bank will cease to restructure the loans of such companies.
Q: Will the bank still have Rs 500 crore of NPLs on its books this time?
A: No, this time there are fresh NPLs of Rs 638 crore. So, this quarter the NPLs should be much less than what was declared last quarter.
Q: How much did the bank provide against its exposure to Kingfisher Airlines?
A: The RBI has permitted the bank to make provisions in two quarters. The bank has already provided for December quarter and a provision of another Rs 60-70 crore will be made in this quarter. This should make up for full provisioning required against the bank’s exposure to Kingfisher Airlines.
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