Q3 bottom-line to see subdued growth: OBC

SL Bansal, CMD, Oriental Bank of Commerce, says that net profit of most of the banks will show subdued growth in the third quarter.

Also read: Book profits above 6000 Nifty, bet on infra: IL&FS Below is the edited transcript of his interview to CNBC-TV18. Q: Do you feel Q3 may signal some revival in bottom line or will it be subdued. Or a revival can only be expected in FY14?
A: From a bottom-line point of view Q3 will also remain subdued for a couple f reasons. First, much restructuring have taken place so the banks will continue to provide for FY12 what they have already restructured assets.
Second, the RBI has increased the provisioning requirement for restructured assets from 2 percent to 2.75 percent and this will hit the bottom line. Three, some banks may move forward and they will provide some bipartite settlement. Overall, operating profit may show growth in some cases for those banks that have performed well on efficiency parameters but net profit of most of the banks will show subdued growth. Q: I think no one has accounted for the bipartite settlement. When does the settlement kick in and what might be the burden on your own P/L, on a quarterly or yearly basis?
A: On November 1, 2012 this started kicking in because on October 31, 2012 they have handed over the charter of demand to the team of Indian Banks Association (IBA) and bank of our size, has a wage bill of close to Rs 100 crore per month.
Even if we assume 15 percent increase in salary - which is reasonable in today's environment, so that overall burden will be close to Rs 180 crore per annum and for two months will be close to Rs 30 crore for the bank of our size. Q: Is power the next problem area?
A: It may be a problem. There are two parts of the problem, first distribution companies and generating companies. For power distribution companies, the Government of India has extended the deadline up to March 31.    
We have also received indications from the Haryana government that they will approach the banks with their restructuring plans. Sources from Punjab National Bank and Canara Bank has informed us that Rajasthan government will also opt for restructuring package which is offered by GoI. However, there is no clarity from Uttar Pradesh Punjab governments, they are not yet out with their restructuring plan.
Generating companies are suffering because discoms are not in a position to pay them. The Government of India and distribution companies are aware of these challenges. If this happens, it will be a very big blow not only for the banking industry. Q: How are talks with the state governments progressing? You indicate that Haryana and Rajasthan governments have come forward for talks?
A: Yes, there are indications. The power secretary of Haryana and discom has visited our office and has shown their keenness for restructuring their assets.  Q: Do you think something could happen by March 31 and Haryana State Electrricity Board (SEB) or discoms problem could get resolved?
A: Hiking power tariff is a politically sensitive issue. We will be in election mood in next six months. It's on everybody's mind that in the long run we need to restore the health of discoms. We cannot fail on this front year after year.
Ultimately, we have to decide what we want. If we want power for public at large then we have to increase the tariff and the public at large should understand that they have to pay the remunerative price for all the services which they are availing from the service provider. Being a democratic country does not mean that we can continue to avail services at a discount Q: This time there are expectation that you would do restructuring about Rs 2500 crore which includes Punjab SEB, do you think that is a fair estimate?
A: December quarter is already over and the Punjab government is not yet ready with their restructuring plans. Moser Baer is also spilled over to the next quarter. This quarter we have done only Rs 750 crore. Fortunately, we could recover Rs 700 crore. Rs 500 crore has been repaid by Air India because they have received some proceeds on issuance of bond and Rs 125 crore we have received from another account. Our restructuring book as of December continues to be the same as what it was in September. Q: Any fresh slippages?
A: Yes, there may be some slippages. Our gross NPA in March was at 3.17, we moved down to 2.94. I have always been maintaining that 10 basis points here and there we would like to try to contain either 10 basis point lower or higher, it is fair in today's stressful environment. Q: Any exposure to the road sector? There is a lot of talk about institutions pulling out of road projects – do you have any exposure?
A: We don't have exposure in specific road projects. But every bank have some substantial exposure in road. For the first time now these contractors have come forward and they were giving notices to NHAI. I have been told that NHAI is approaching Supreme Court also, and they are raising their voice that ministry of environment is not clearing the projects so there are facing problem, ultimately all of us have to come to a common ground what we want.