See higher provisions of Rs 400 cr in Q1: Canara Bank CMD

Moneycontrol Bureau

State-owned Canara Bank expects an incremental provision of around Rs 400 crore during the April-June quarter this year on the back of revised restructuring guidelines issued by the Reserve Bank of India following Mahapatra Working Committee recommendations as well as general industry stress.
"Our projections overall are likely to go up not just because of this. We are somewhere getting some benefit of the overall restructuring guidelines. In some places, we have to make more provision and we are hoping our provisions to go up in June quarter by around Rs 300-400 crore." R K Dubey, chairman and managing director, Canara Bank told CNBC TV18 in an interview. Also read: RBI stiffens loan restructuring norms for banks
When the borrower faces financial stress and cannot repay loans, it asks for relaxation of original terms and conditions. Banks then ease certain terms like reduction of interest rates, moratorium on interest repayment and so on. In banking parlance, it is called restructuring.
The stricter restructuring guidelines will basically cease opportunity of restructuring after April 2015.  The latest norms do not allow any loan account to regain the "standard" (performing) status after it is restructured. It will always be treated as non-performing.
However, Dubey does not think that it would lead to higher non-performing loans (NPLs). "The economy is likely to improve in that time. Whatever restructuring is to be done that should be over much before that time. So, NPL should not go up after that period," he said.
Below is the edited excerpt of the interview: Q: The final guidelines allow banks to restructure infrastructure as well as non infrastructure loans if their date of commencement changes. Can you take us through what exactly that means? Originally the Reserve Bank of India (RBI) was allowing restructuring only if the date of commencement for infrastructure loans was changed right?
A: Actually, the extension of the date of commencement of commercial operations (DCCO) was earlier treated as restructuring. Now, extension of date of commencement of commercial operation will not be considered as restructuring. Therefore, there will be incentive for quick implementation of restructuring package and it has to be done now in 120 days even for non corporate debt restructuring (CDR) cases but this benefit will be available only till March 31, 2015. Q: The DCCO was earlier was not available to real estate companies, now it becomes available even to real estate and other non infrastructure companies. Does this make you a little open to giving loans to these companies, does life change at all for the non infrastructure companies because of this clause?
A: Naturally, we get some breather from the RBI on this score so we would be inclined to lend a little more and do the restructuring in time. Q: Could you tell us particularly for Canara Bank what the impact will be in the coming two fiscal years on the back of these guidelines?
A: Our projections overall are likely to go up not just because of this. We are somewhere getting some benefit of the overall restructuring guidelines. In some places, we have to make more provision and we are hoping our provisions to go up in June quarter by around Rs 300-400 crore. Q: Even on that originally the RBI had asked you all to come to that 5 percent restructuring by 2015. Now you get up to 2016, you get three years. So is your provisioning lower than what you expected? Three months back you expected your provisioning in June quarter would be higher than Rs 300-400 crore that you are now saying?
A: Now, it will be higher. It gets higher after the new set of rules. Q: What is the likely provisioning for the full year then?
A: We estimated the likely provisioning at around Rs 1400 crore as against around Rs 1000 crore we did in the last quarter of March and Rs 950 crore for June 2012 the corresponding quarter last year. This includes provision for non-performing assets (NPAs), for restructured assets, for standard assets, for provisional investment, for tax and other provisions. For restructured assets alone, we feel this will go up by Rs 275 crore. Q: Generally since you cannot restructure loans after April 2015, are you expecting that the chances of non-performing loans (NPLs) will increase as well you got to start providing more right away in the intervening period as well. So do you think the pressure of NPL creation is going to continue for several quarters now?
A: By that time the whole pipeline of NPA or restructuring should be over. What my expectation is that the economy is likely to improve in that time. Whatever restructuring is to be done that should be over much before that time. So, NPL should not go up after that period.
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Q: But in any case for the banking industry as a whole as well as for your bank separately, do you think the pressure of NPL will increase in the current and the next quarter? When do you think that the pressure will start receding?
A: I can comment for our bank. Overall, there have been some issues in the industry but then things are improving. This quarter our NPA gross may go down from 2.5 percent to 2.2-2.3 percent and for the September quarter I am hoping that it should be around 2.15-2.20 percent and by March it should stabilize around 2 percent. Gross NPA could be 1.9-2 percent, we are working to reach 1.9 percent.

Q: We also understand that the criteria for upgradation as well as recovery has gotten a little stricter compared to the earlier guidelines. So, could you tell us how has it become tougher and does that mean that Canara Bank or even the entire banking industry will be able to upgrade and recover less than they had earlier anticipated?
A: Upgradation depends on how we tackle the borrower, how we understand this problem and how we account for that in our restructuring plan. Upgradation has been doing well in our branch better than elsewhere. Our upgradation last year, year-on-year had been more than Rs 800 crore. Even this year our upgradation in the first quarter is going to be Rs 800 crore as against Rs 335 crore last year corresponding period.
Hence, upgradation is more, recovery is more. Besides upgradation of Rs 800 crore, the cash recovery was more than Rs 4000 crore. That is why our NPA from December level of 2.76 percent came down to 2.56 percent and I am confident that in June we will be around 2.3 percent. Q: Is it true that your recovery and upgrades as a percentage of your opening gross NPA has actually slipped? So for instance in FY12 your recoveries and upgrades as a percentage of your opening gross NPA was at 71 percent and you have closed FY13 at about 51 percent. So as a percentage of your total bad assets your recoveries and upgradation have actually gone down.
A: Actually slippage last year was more. Last year, the fresh slippage was more which by constant monitoring we have been able to control in the last quarter only. And I am confident this year quarter-on-quarter one will find slippages to be less, upgradation to be more and recovery will be more and if that happens, the credit growth would also be more.
Last year, our banks credit growth was relatively less than the peer banks or the industry rate. This year, I am expecting more credit growth around 18-20 percent, we are expecting more upgradation, more recovery and less slippage. Q: The power sector in the first place even with this RBI forbearance on DCCO being allowed to be extended, do you think inspite of that some big power projects could slip into NPL status simply because of the lack of availability of gas or lack of buyers in the form of State Electricity Boards (SEBs)? Is that your fear of that happening in the next two years?
A: I cannot say that it is likely to happen because we have total Rs 13454 crore exposure in the discoms and also in power Rs 32000 crore. We have worked out our NPA at the moment in power sector and it is less than 0.5 percent. With restructuring going on as per the central government package, most of the state governments agreeing except Punjab and Kerala government where we don't find any problem, our accounts are standard and regular servicing is being done. In our bank, power sector is not going to create any problem. Q: The restructuring of Discoms, you are the consortium leader in some of the state Discoms. Can you tell us where you are heading the consortium and what is the status of the bailout package in the consortia that you are heading?
A: We are the leader only in Haryana and there we have been able to that. It is a standard asset and we have done it. The bailout package is through. Q: And the Haryana government has promised to replace some of the SEBs discoms loans with its own loans?
A: Yes. Q: When will their money come in? When will the swap actually happen?
A: For the 50 percent, we are likely to get bonds and it is likely to happen very soon. Q: And there won't be any NPV hit for you?
A: No, we have ensured that in any restructuring NPV is taken care of. Q: In that case, you will have to lend more to Haryana to the Discom?
A: Yes we will do, when it is standard what is the problem in lending?