In an interview to CNBC-TV18, BK Batra, Deputy Manager of IDBI said that, they have not targeted any high growth and overall also credit growth in the banking sector has been lower than projected. There are some restructurings are already there in the pipeline and they are going to get concluded within the next two-three days.
In an interview to CNBC-TV18, BK Batra, Deputy Manager of IDBI spoke about the latest happenings in the ban and the road ahead. He expects credit growth to pick up in the last quarter. However, the bank may end up clocking a growth of around or a little below industry growth of 15 percent.
Further, he added that the government of India may infuse some funds in the bank in FY13. "We are comfortable right now but the requirements are going to go up from January 1 under Basel III regime. We are also in clue before the government asking for supplementing our capital," he added.
Below is the edited transcript of his interview to CNBC-TV18
Q: How do you see volume of business growing? That's been the sore point and it’s been a particular problem with your own bank. Is there any improvement at all and when would you expect it to improve?
A: As far as our bank is concerned right from beginning we had not targeted any high growth. We have been following a policy of calibrated growth because we needed to look at the composition of our portfolio. We have been trying to actually change the mix which was heavily loaded in favour of corporate loans to retail loans. In that pursuit we have kept our growth target lower than the industry levels.
However, so far it looks that it will be lower even than what we had thought it to be at the beginning of the year. Overall credit growth in the banking sector also has been lower than what was projected. What was projected was more than 17 percent but it has been so far around 15 percent year on year. We are expecting that maybe there will be an up tick in the last quarter and it may still end up around 15 percent. But we are expecting our own growth to be somewhat below or between that.
Q: IDFC is taking over Delhi-Gurgaon expressway asset and there were reports that even you maybe looking at that asset. Now your denial has come through, you are not interested but are banks getting increasingly wary about lending to these road projects?
A: I think it is a case of looking at individual projects. As far as this particular project is concerned we have not been connected with it and we have no proposal before us to get associated with it. However, if there are any other road projects or similar projects where we need to look at their refinancing or securitization after they have become operational, we have been open to it. We will continue to be open to it, in fact that is a good financing opportunity when the project has been implemented. The risk is lower and there is clarity on what is the revenue already and what is it going to be. Therefore, one can make fairly good assessment of the credit.
Q: The industry might not concur because National Highways Authority of India (NHAI) has not been able to award a lot of projects this year particularly because a lot of the already awarded projects are not be able to achieve financial closure. This area, the road segment could be a problem area. Aside of that is there any other area that you feel could still come under stress because a lot of bankers point out the asset quality usually comes up with a lag, there could be problem issue still?
A: I agree that very few new road projects are getting added to the portfolio. However, what I was talking about was the existing implemented roads, where banks have investment. For asset liability reason some of them might also get it refinanced. That is something which can be an interesting source of investment. As far as other sectors are concerned, we are all aware there have been stresses. This was due to various reasons related to implementation of those projects in particular power projects.
Over there several projects have under gone delays and a bit of a cost overrun also. There also we are looking at those projects one by one. I can say for IDBI Bank that as far as share of that particular stress is concerned we have lesser of that because of better selection of projects in the beginning itself. We also do have some of those projects and we are attempting to find solutions to them as well, one by one.
Q: How much do you think would be the non-performing loans (NPL) or the fresh slippages or restructuring accounts in the third quarter now that you have only couple of working days left?
A: Some restructurings are already there in the pipeline and they are going to get concluded within the next two-three days. I would say that it would now be declining from Q4 onwards because most has been taken up for restructuring. Maybe the restructuring process would be completed in the next quarter. However, thereafter the bulk, the volume and the incidence of restructuring should gradually come down.
It is also related to policy measures having been taken by the government in several areas. We are expecting the confidence will return to industry. Whatever, projects have been under implementation, they will get completed, they will acquire pace and therefore the pain will lessen in months to come.
Q: Is it fair to say that in Q2 we had incremental restructured assets of Rs 1600 crore. We could witness a similar level in Q3 and then Q4 we could start tapering off?
A: I would think so. Restructuring would continue as a measure of managing your stressed assets. However, as far as volumes are concerned, one can expect that they will begin to go down from Q4.
Q: What about the overall non performing assets (NPA) level? It is standing at 3.5 percent, gross NPA do you think it peaks off at 3.5 percent or it goes to say 3.7 and then peaks off?
A: Very difficult to put an exact number but I would in line with what I have mentioned about restructuring. Restructured assets are not added to the NPLs. As far as NPLs are concerned, I am seeing more of them coming from SMEs sector and maybe a couple of them from the large accounts. Maybe they can be managed by being proactively and timely restructured. What one need to watch are the ones which have been restructured. We will need to do proper restructuring. Then we will hand hold them to see that they come out of their stresses soon and don’t slip into NPAs early on.
Q: You will be getting some extraordinary income from the sale of CARE ratings share. How much money did IDBI make and I assume in the third quarter that will boost your profit?
A: We have put on sale a portion of our shareholding in CARE ratings. We would be getting some profit out of it which will be upwards of Rs 150- Rs 160 crore. However, we need to take care of the overall balance sheet. We have to see that the necessary provisioning that also is adequately made. So, whether it will give a boost to our profit or not, I am not in a position to comment on that.
Q: Are you then planning to use it for a higher provision cover ratio. In any case provisioning requirements have gone up even for restructured assets. An increase has come in the latest RBI credit policy so you expect provisioning to go up in the current quarter?
A: We will definitely make the necessary provisioning. What I am saying is that even with this additional money or surplus available to us, one is not in a position to say at this juncture. Accounts are yet to be drawn up, the quarter has yet to be finished, whether our profit will be boosted up with this or not. We are yet to look at the overall picture and we will come to the numbers.
Q: Do you have exposure to any of the power projects that are under construction?
A: Of course we have.
Q: The worry is that some of these have not yet got full and final fuel supply agreement (FSA) from Coal India as well the State Electricity Board (SEB) or the Discoms are not financially in a position to pay so there are some worries about the upcoming power plants? What would your exposure to be to those that are under construction and would you have these kind of worry?
A: Those worries are legitimate. We share those worries and some of our projects are also such that are under implementation and awaiting execution of FSAs. If I look at the overall banking sector, I can say that the proportion of the under implementation power projects which are under this kind of stress category are less with IDBI.
We let some of them go at the initial stage itself because of the risk that we perceived. But the ones which are with us are small in number and we believe they are manageable. We have looked at each one of them individually and we believe that the issues about them will get sorted out within the next few months.
Q: How much will Stock Holding Corporation of India Limited (SHCIL) boost your fee income?
A: SHCIL is yet to be merged with us. The proposal has been approved by both the boards. So, whatever additional income comes from there will come only when it formally gets merged.
Q: That will be this fiscal?
A: Now it may slip this fiscal. We were hoping to complete the process by March 31, but these processes take time because of the involvement of courts. It might over shoot March 31, which we were hoping. Therefore, we would need to complete next year for whatever contribution SHCIL makes to our balance sheet and profits.
Q: What is the capital adequacy? Will you need capital? What is the tier I overall capital adequacy and need?
A: Our overall capital adequacy is quite healthy. It is more than 14 percent and we have recently raised tier I and tier II capital also. Last week itself, we raised about Rs 150 crore perpetual instruments that is tier I. Therefore, we are comfortable right now but the requirements are going to go up from January 1 under Basel III regime. Therefore we are also in clue before the government asking for supplementing our capital.
Q: Getting anything this year?
A: We hope to get something this year. With that we should be comfortable as far as our business requirements in 2013-2014 are concerned.