Expect to improve NIM in second half of FY13: IDBI

In an interview to CNBC-TV18, BK Batra, deputy managing director of IDBI says net interest margin (NIM), currently, is at about 2.09-2.1 percent. "We are expecting that if the business improves in the second half, as is now being envisaged, we should get an improvement of 10-20 bps in our NIM," he adds.

Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Ekta Batra.

Q: One of the things that definitely has scared investors in banking stocks is the continued flow of companies which are asking for CDR or which are in trouble. The latest of course if Deccan Chronical. What exactly is your exposure? What is the latest in terms of the CDR request? Will it be granted because of forensic audit was ordered?

A: I will not be able to give you much detail about the individual client. But I would like to mention to you that we are also one of the bankers to the company. It is not yet got admitted to CDR because of lack of agreement amongst lenders. The necessary support that is required under CDR mechanism has not yet come. But that effort is still on to undertake its restructuring and the CDR.

As far as IDBI Bank is concerned, we have certain securities which are not there with other lenders. We hope to workout some kind of resolution with the company on the basis of that.

Q: In Q1FY13, we did some amount of pressure actually increase on a sequential basis. You had slippages of around Rs 1,000 crore as well. Where exactly are you seeing the most amount of pressure in the quarter gone by?

A: The pressure on the companies and on the banks asset quality continues. In the Q2, we had expected that it will somewhat ease, but it looks that it is still staying. I can say that the difference is that the number of maybe larger accounts, which are under pressure or which are entering CDR, may have come down. But equally the number of smaller accounts or midcap accounts has risen. Therefore, the pressure, which we had predicted this way that it will travel down to midcap and smaller companies, that is what has happened. There is larger number of smaller companies which have come before CDR and which are otherwise also knocking at the doors of banks for some kind of relief in restructuring.

Q: We do understand that you have exposure to Kingfisher at this point of time. What exactly the lenders are speaking about at this point in time? What is the status on monetising assets? What exactly would be your exposure to Kingfisher? How much have you already factored-in in terms of an NPL?

A: I think Kingfisher is talked about almost everyday. So, facts are all known to everybody. I would say that after the announcement of FDI in aviation there is an effort to put together something on the part of the company.

We recently had meeting with the company and amongst lenders. That is where we sort a definite plan of action from the company management. We are expecting them to revert to us in a few days time. Thereafter, lenders will take a call on the future course of action including enforcement of available securities, if necessary.

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Q: Now that the company is in a lock-out situation, are you getting a sense that business will restart, it just seems to be an implosion of the company itself?

A: I do concede that things have become more difficult for the company to resume operations than they were before. But we haven’t lost hope yet nor has the company management. So, we are willing to wait a while for the company to come up with any credible plan, any workable plan, any viable plan and see if it can be supported.

Q: But the lenders have pondered about whether the whole thing may have to be written off. In that case, is it a Rs 6,000-7,000 crore blow to the system?

A: Around Rs 7,000 crore is the aggregate exposure of bankers. Against that, banks have security of the assets. We have the corporate guarantee of the promoter company, we have personal guarantee of Dr Mallya. We have some tangible collaterals also in the shape of Kingfisher Villa and the company’s corporate house. Therefore, we have in Addition the Kingfisher brand also pledged to the lenders. We think that that situation, if it comes, maybe some losses may have to be incurred by the banks.

Q: Should we therefore conclude that second quarter also will see an inching up of gross NPLs as a percentage of total assets?

A: I think it might happen because the stress on the corporates, especially mid-corporates continues. Therefore, some addition to NPAs is likely to happen. How much it would be? The numbers would tell because they are being finalised. But we have not seen a great let up in the addition to restructure assets and NPAs during Q2.

Q: Where exactly do you see on NIMs stabilising at?

A: Our NIM is at about 2.09-2.1 percent. We have been trying to protect it and improve it to the extent possible. On the side of advances, the yield has been under pressure. So, therefore, we have been trying to manage it more on the cost side.

We are trying to increase our CASA share of deposits. We are also trying to shift from bulk deposits to retail deposits. We are also trying to diversify our sources of funding, especially the foreign currency borrowings. So, the mix of borrowings is what we are trying to change in order to achieve lesser overall cost and thereby protect and improve our margins somewhat.

We are expecting that if the business improves in the second half, as is now being envisaged, we should get an improvement of 10-20 bps in our NIM.