Asset quality stress to continue; NPLs stable: Karur Vysya

Karur Vysya Bank delivered strong numbers in terms of topline and bottomline for the first quarter of FY13, however, asset quality pressures drove up their gross non-performing loans.

Speaking to CNBC-TV18, MD & CEO K Venkataraman said that they were facing pressures just like every other bank, and that they are in a position to meet their provision coverage. “We do see some kind of a pressure on our asset quality, but it’s manageable in my opinion and I think it’s not going to be an alarming situation,” he said.

On, the downside, he says this pressure may continue for a while longer, but there won’t be any increase in NPLs. “It won’t go beyond 1.3% or 1.4%,” he said.

In terms of restructured assets, Karur Vysya’s restructured accounts are 2.63% of their total advances. Out of these, Venkatraman says that they do not expect any accounts to slip to non-performing assets.

Below is an edited transcript of his interview with Latha Venkatesh and Ekta Batra.

Q: Your gross NPLs have risen by about 17% QoQ. Do you think there can be a steady growth in NPLs in the coming quarter as well?

A: The asset quality is under pressure for quite sometime. As you know, this is going on in almost all the banks and we do see some kind of a pressure on our asset quality. But it’s manageable in my opinion. I think it’s not going to be an alarming situation. We are in a position to make provision coverage of at least 75% and w are in a position to maintain that. So with that the growth is not really very alarming.

But I would say it is more than what it should be in the normal course. I think because of the slowdown in the economy many companies are facing some kind of pressures in their cash flows.

Q: You would expect this to continue for a couple of quarters at least. What kind of visibility do you have?

A: The pressure will continue, but I don’t expect any big increases.

Q: In terms of the restructured as well as fresh slippages in Q1, what would your restructured book now stand at?

A: Restructured accounts are about 2.68% of our total advances. Number of accounts have come for restructuring, particularly under CDR, but most of these accounts remain standard. We don’t expect slippages of restructured accounts into NPA anyway.

Q: In Q4, the outstanding restructured book stood at Rs 656 crore. Can you give us a figure in terms of what it stands at at this point?

A: Rs 648 crore as of the end of June, about 2.63%

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Q: Can you just give us what your NIMs were for this quarter?

A: NIM for this quarter is 2.83%.

Q: That’s been quite a reduction on a sequential basis?

A: It’s just about 20 bps. There was a spurt in advances growth during Q4, particularly in the last month. Naturally, we needed to borrow at a slightly higher cost. But this happened in this particular quarter. We have been able to unwind all high cost borrowings and high cost deposits, plus there has been slight reduction in the cost of funds and we have also cut the interest rates on our deposits. As far as the cost of funds control is concerned, this will take us forward in quarters to come.

Q: Your bank gets a very high discounting because of its steady growth of about 24-25%, its well controlled NPLs and its decent margins at about 3.25%. A year ago you were still running at 3.25% in terms of margins. On a YoY basis it’s actually a fall of about 40 bps. So the question really is where do you go from here? Does it steady up at 2.8% and improve to 2.9% or even 2.7-2.6% is likely given the pressures of the moment?

A: Last year that was a conscious call we have taken as far as the NIM is concerned. The slowdown in the economy, the rising pressure on the asset quality we had to take a call to either go for high quality slightly lower yielding assets or high yielding assets which always attracted higher risk. We wanted to control risk and therefore went for high quality but slightly lower yielding assets. That’s the reason why our margins have been slightly compressed and that was a conscious call.

Q: In the current quarter, your NPLs have gone up and your margins have gone down. Even then both those ratios are looking a little more tired?

A: Balancing is working because our top-line has grown and the margins have slightly compressed. This is mainly because a couple of accounts which have gone for CDRs are NPLs which will come out of NPA the moment the CDR package is implemented. So the margin will not be much of an issue. We will maintain around 3% margin going forward.

The idea here is that we have to keep our asset growth so that the total profits are good. As far as the RoA is concerned, we are maintaining it above 1.5%.

Q: What were your recoveries and upgrades for this quarter and what would be the trend in terms of FY13? Would you be more aggressive with regards to that?

A: We have started our aggressive recoveries and upgrades right from January this year. It will continue for some more time mainly because we did anticipate that there could be some pressure on the asset quality. In fact there has been a recovery of about Rs 76 crore and deductions were about Rs 92 crore.

We have been able to maintain quite a good level of recoveries, but additions continue to happen. We have been able to do a lot of restructuring in some of these accounts; they will continue to be NPA for a year and then they will come out of that. As I said, some of the CDR accounts are NPA now, but with the CDR package implemented they will come out of NPAs.

Q: What’s the growth you are expecting on loan and deposit?

A: for loan we have targeted for about a 28% growth for the year. As of now it’s around 33%, but if we can maintain around 28% that will be good enough. As far as NPAs is concerned, percentage wise relatively around 1.3% or 1.4%, it won’t go beyond that.