Midcap public sector banks have been in the spotlight for a while now for their steady performance. Andhra Bank is one such example that has made significant recovery of around Rs 200 crore on the non-performing assets (NPA) front in the last three months.
Speaking to CNBC-TV18, CMD CVR Rajendran said the bank needs around Rs 200-300 crore cap infusion from the government to stay afloat. The bank had earlier requested a capital infusion of Rs 800 crore from the government. According to Rajendran, agriculture, infrastructure and power sectors are contributing to the bulk of the bad loans. The bank had almost Rs 1,500 crore worth of NPAs on books due to agri sector but has managed to recover Rs 500 crore.
Going ahead, Rajendran is confident of maintaining the net interest margin at 3 percent in Q3 and gross NPAs and net NPAs at Q2 levels. Below is verbatim transcript of the interview:
Q: Over the next weekend there is also this Gyaan Sangam that is taking place, the meeting between banks and the finance minister and prime minister, are you at liberty to tell us a bit about that and how many banks will be participating in that, will it be the entire PSU banking gamut?
A: All the public sector banks are participating. There are industry experts and there are also participants from private sector banks who are coming as experts on the subject and also some more consultants are also coming to guide us on it.
Q: What would be the capitalisation requirement for Andhra Bank in FY15? How much is promised from the government, how much have you received and how much would you have to raise from the market if that is the need?
A: We asked for Rs 800 crore from the government as per the estimates made in the beginning of the year. The estimates are far exceeded in case of NPA and NPA provisions have exceeded our expectations. So naturally the capital requirement has also gone up.
Originally, we asked government to allocate about Rs 800 crore of capital to us, government is yet to make a decision, we don’t have any intimation from the government about the amount allotted to our bank.
In the meantime, we have raised about Rs 500 crore of tier-I perpetual bonds recently and we propose to raise another Rs 500 crore after the rate cut somewhere in February if it happens.
Anyway rates are going down whether there is a rate cut or not and therefore, another Rs 500 crore will be raised somewhere in February or March. That Rs 1,000 crore of additional capital will come in tier I, maybe even the government allocates another Rs 200-300 crore, that should be sufficient to keep us floating.
Q: So Rs 200-300 crore would be your requirement from the government for capital infusion in FY15 as opposed to the Rs 800 crore which was earlier asked for?
A: That is right.
Q: If in case there is a thought about consolidation which might come up which Andhra Bank might be involved in, would that be something that the bank would consider quite deeply? For example, consolidation might be a good option for Andhra Bank going forward?
A: I am not sure whether this is a part of the two-day discussion in Pune. Theoretically, it is also taken up for discussion. But there are lots of issues involved there. Andhra Bank has its own brand loyalty and has very strong presence in Andhra Pradesh and Telangana and it is a PAN India bank as on date.
The problems of Andhra Bank are slightly different from problems of other banks. Our NPAs are coming mainly from two segments today, one is agriculture because of the loan waiver which was announced and not implemented in full my NPAs are around Rs 1,500 crore as on date only from the agriculture segment.
There is some clarity coming in the agriculture loan waiver scheme and money is also flowing from the government slowly in which case most of these loans will come out of this NPA by March end.
The second major area is our infrastructure and power exposure. Most of the power producers and infrastructure companies are from Andhra, naturally our exposure on these companies also disproportionately high and therefore, most of these companies are under stress.
If there is a turnaround in the infrastructure and if infrastructure starts growing, probably we will be in a position to come out of these bad loans.
We don’t have bad loans which are completely unsecured at this point in time. So turnaround may be much faster in Andhra Bank when compared to many other banks. So Andhra Bank has a chance to stand alone for quite sometime.
Q: In that case, would you say that the worst of asset quality is behind you or is there a risk of this issue resurfacing again in 2015 because your asset quality has improved over the last three months or so?
A: I will not say it has improved. It is maintained around 6 percent even in the current quarter we may be in a position to maintain around that level. 6 percent is GNPA and 3.54 percent is a net NPA.
As agriculture loan recovery has not happened as projected, we expected this agriculture loan to be completely paid off and we expected the economy also to improve in the meantime. So we were projecting 5 percent and 3 percent for this current quarter that may not happen at this point of time it appears. We will be in a position to maintain our GNPA and net NPA around same level for the last quarter.
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