See net interest margin at 3.6-3.7% in FY13: Federal Bank

In an interview to CNBC-TV18, PC John, executive director of Federal Bank says, there can be a slight reduction in the net interest margin (NIM) ahead. “FY13, we are expecting between 3.60% and 3.70%, but that itself will be a high level of NIM,” he adds.

He further say, the bank is confident of reaching a 20-22% credit growth in FY13. Below is the edited transcript of his interview with CNBC-TV18's Gautam Broker and Ekta Batra. Also watch the accompanying video. Q: One of the key things that stood out in the previous quarter was the slippages which were pretty much controlled as well as the high amount of recoveries which you saw in the previous quarter. Can you give us a sense in terms of how exactly Q1 is panning out in terms of slippages as well as possibly recoveries you all are seeing? A: For the last few quarters, we have been seeing steady reduction in the slippages, especially in the retail and SME sectors. We expect that trend to continue. In the corporate segments, there can be one or two cases which are not predictable. In the corporate cases, there are some accounts with little bit of stress, but at what point of time it can turn into non-performing asset (NPA), we can’t say. But overall the NPAs slippage trend is coming down. That is quite visible in the retail and SME segments. That trend will continue. Recoveries also continue to be good. Q: You managed to end last fiscal with NIMs of about 3.8%. There was a slight dip in the last quarter in Q4, a sequential dip. What kind of NIMs are you targeting in FY13? Are you expecting them to be flat? Could there be a slight slippage depending on the cost of funds? A: FY12, the NIM was 3.79%. There can be a slight reduction in the NIM. FY13, we are expecting between 3.60% and 3.70%, but that itself will be a high level of NIM. Q: What would be the status with regards to the restructuring? In the previous quarter, it was around Rs 920 crore, Rs 300 crore of Air India. Can you give us a sense on where these restructured loans stand as of now? A: That type of restructuring is not expected. Only the normal restructuring is expected to be there. Last quarter, the restructuring figure was high because of two large accounts. Those types of issues are not expected to be there going forward. Only the normal restructuring will be there. Q: Do you think the worst would be over with regards to Federal Bank’s exposure to the aviation sector? You restructured Rs 300 crore and your slippages included around Rs 90 crore from Kingfisher as well. What would your exposure be to the aviation sector going forward? Have you put the worst behind you? A: We don’t have any further exposure. One account has been restructured. The other account has already been classified as NPA. We have no other exposure under aviation. Q: How is growth looking like? In FY13, 18-20% in terms of credit growth target, do you think is achievable? What are the early trends you are picking up at this point? Has there been sort of an improvement in terms of demand for credit at the moment? A: FY13, we are expecting 20-22% credit growth, which seems to be quite achievable. The early trend is also good. Usually in the first quarter there is a dip in the advances. That type of dip is comparatively lower. This year, the trend seems to be better. We are confident of reaching a 20-22% credit growth. Q: If you are saying that you are seeing the same asset quality trends this quarter as well, could we expect the same amount of provisions for FY13 which you did in Q4? Was Q4 just a one-off in terms of such low provisions hence the bottom-line got boosted? A: The general trend in NPAs will be better because the slippages will be lower and recoveries continue to be good. Consequently, the provision levels also should not be higher. In any case, we expect the cost of provision to be lower than 1% in any case.