Target gross NPA below 3% & net NPA below 1%: IDBI Bank

The recent fall in bond yields resulted in rise in bond prices. State owned banks like IDBI Bank with a sizable bond portfolio of about Rs 14,000 – 15,000 crore under available for sales (AFS), leaves no opportunity to book profit.

"As far as IDBI Bank is concerned, we are taking advantage of the situation and the portfolio. Overall for the banking industry, it is a good sign that it can help them in making some good money. Banks accordingly can use this money for making provisions for non-performing assets (NPAs)," R K Bansal - executive director at IDBI Bank told CNBC TV18 in an interview. The bank does not expect much increase in April - June quarter. However, the asset quality is not expected to recede significantly in line with overall banking industry. Moreover, the first quarter of FY14 is likely to see some restructuring cases but may remain dull (in terms of lending activities) due to seasonality.
Below is the verbatim transcript of his interview to CNBC-TV18 Q: Let us talk about the bond yields because that is where we have seen steep declines, could you tell us if the gains that we have seen will reflect in the bond portfolio as well for this quarter? A: The bond yields have gone down certainly. So, it depends how much we have in held-to-maturity (HTM) and how much we have in available-for-sale (AFS). Overall for the banking industry, it is a good sign that it can help them in making some good money. Banks accordingly can use this money for making provisions for non-performing assets (NPAs) etc. As far as IDBI Bank is concerned, we are taking advantage of the situation and the portfolio, which we have under AFS, we are selling those bonds and trying to book some good money. Q: Could you tell us how much is currently in the AFS portfolio in terms of the quantity of bonds and even in the HTM in your bond portfolio? A: In AFS we have about Rs 14,000-15,000 crore. While in HTM we have about Rs 50,000 crore. Q: Could you quantify the kind of gains that we would see in particularly for IDBI Bank in your bond portfolio because of the decline in yields? A: That would be difficult to put a number because it also depends on the maturity and the duration of that bond. Let us say if yields go down by 1 percent and the bond is of 10-years, it can make a difference of 10 percent also. It depends on the maturity. So, each bond will be having a different maturity. It will be difficult to give a number. Q: What is the outlook on asset quality because what stood out over the last few earnings is that restructured assets have been going up. You saw that in case of State Bank of India (SBI) as well. In your case as well, it has gone up sequentially even though net NPA, gross NPA are down but restructured assets are up? A: On the overall basis, restructured assets have not grown up much during the quarter because the figure was about Rs 13,000 crore in March. We started with about Rs 10,000 crore in March 2012. In fact the figure of restructured asset which we had as on March 2013 was less than December 2012. It was because of two reasons. One is that Reserve Bank of India (RBI) has come out with the circular that cases, which have completed two years, you can take out of the restructured list. So, that has helped us about Rs 3,000 crore has gone out of that restructured list. Adding the fresh cases, in fact the figure was less than December. Coming to the second part on NPA, we feel that March NPA has been reasonably controlled. We do not expect much increase in June though the pressure still remains and then overall banking industry should see. Some of the cases which have restructured which are pending restructuring will see and Q1 is normally always dull. Q: Any guidance that you can give us both on the gross number and the net number? A: We are in the process of finalizing the budget. However, our target is we want to keep the gross NPA below 3 percent. We will try to keep the net NPA at about close to 1 percent. Q: Could we expect more pressure in the net interest margins (NIMs) and if you could provide us any kind of guidance for the next year? A: I do not think so because NIM was better in fact in March 2013 quarter. Overall for the full year also we had improvement of about 10 basis points (bps) for the full year. We expect that this year also, we should be able to reach an NIM of about 2.25 or 2.2. Q: We do not have your slippages as well as the cash recovery figures that we saw in Q4, could you provide them for us? A: The overall recovery of NPA has been reasonably good, but upgradation has been more than that. That is mainly because that many cases in fact keep on coming like one quarter it becomes NPA, next quarter it becomes standard. Keeping in view the likely recovery in the economy for this year, I feel the upgradation should be more than last year. We expect upgradation and recovery taken together to touch almost Rs 2,000 crore.