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Last Updated : Apr 30, 2013 09:12 AM IST | Source: CNBC-TV18

IOB expects lower NPA going forward: Chairman

Indian Overseas Bank, whose net profit in January-March tumbled 89 percent on year on sharp spike in provision expects the non-performing assets to come down going forward on restructuring of loans.


Indian Overseas Bank, whose net profit in January-March tumbled 89 percent on year on sharp spike in provision expects the non-performing assets to come down going forward on restructuring of loans.


Although, IOB chairman M Narendra did not provide details on how it plans to reduce NPAs, he said that along with NPAs  provisions will also come down after the second quarter of FY14. The bank recently restructured loan of Suzlon, Tamil Nadu Electricity along with few other companies.


Bank's provisions against bad loans in Q4 surged more than three-fold from Rs 388 crore to Rs 1,187 crore on year. Gross non-performing assets (NPA) ratio increased to 4.02 percent as against 2.74 percent. Net NPA ratio rose to 2.50 percent as compared with 1.35 percent.


Below is the edited transcript of his interview to CNBC-TV18.


Q: The bottom line of Indian Overseas Bank (IOB) is disappointing this time. Why the provisions spiked 200 percent on a y-o-y basis and what the trajectory for provisions would be in the coming couple of quarters?


A: Our profit has grown in this quarter. We have made a provision of Rs 1087 crore in net profit. Our NPA stands at Rs 779 crore. Similarly, there is a provision requirement relating to restructured accounts of above Rs 128 crore.  We made a provision of Rs 102 crore for standard advances and we made provision requirement of certain non-discretionary shares which come on account of Corporate Debt Restructuring (CDR) as well as equity reset to the tune of Rs 131 core, so that resulted in higher provisioning.


Gross profit has stabalised in spite of Rs 200 crore of interest reversal, which is a positive sign. The year 2012-13 has been a difficult year as far as NPA levels is concerned, but recovery is expected. In this quarter recovery and up gradation to the tune of Rs 950-1070 crore has been affected. This has also contributed substantially to the non-interest income.


Q: Is the provision figure is a one-time phenomena or what is the level of provisions that we can expect in the coming quarters for the bank? Will it reduce from this level?


A: This is what we are now looking at in terms of the fact that few accounts as one goes forward the security level gets slightly reduced. Then naturally we have to necessarily have the substantial provision then for the unsecured portion.


However, this particular quarter was very high level, because the incremental NPA also has been higher. Going forward, this type of provisioning, on an average, 40-45 percent gets into the provision requirement which some time reached 70 percent, so this was an exception. It will come down in next year in first one or two quarters.


Q: What were your exact slippages this quarter as well as your incremental restructuring which you all added to the restructured book?


A: We had restructured loans from Rs 15607 crore to Rs 18049 crore. Suzlon is a part of that CDR along with Tamil Nadu Electricity.


Q: What is the exact figure for incremental restructured?


A: It is less than Rs 3000 crore, it has increased from Rs 15,607 crore to Rs 18049 crore. 


From the restructured set altogether for full year, we had a default of Rs 757 crore only, 4.18 percent. Around 97 percent is performing. We have been maintaining this for the last three years and it is much less than the industry.


Q: What was your exact figure for slippages?


A: This quarter the slippage internationally has been around Rs 368 crore and domestically nearly around Rs 1,100 crore. So, overall slippage is around Rs 1,600 crore, to be specific Rs 1,788 crore from January 1 onwards. It is very high. In this we do not have bigger accounts, we have Rs 50 crore and above in these three accounts. Others are smaller accounts in this quarter. We don’t expect major NPAs next year.


Q: What the incremental restructuring looks like for the bank? What level of slippages we could see in the next at least one quarter?


A: Restructure of around Rs 3000 crore has completed more than two years.  


Once the RBI gives clearance we can reverse that entry. That will bring it down to Rs 15,000 crore. There is a CDR case which is in the offing of around Rs 1,400 crore, so with the reduction that can be added back. So again it will come to around Rs 18,000 crore odd. In this year we had projected around Rs 6,500 crore which is within that. Next year definitely it will be around 50-60 percent, in the sense it will not be more than Rs 3,000-4,000 crore.


Q: What would be the key accounts you restructured this quarter and what would it comprise of going forward? You mentioned Suzlon, can you name any specific sectors which you had maximum restructuring from?


A: We have restructured accounts of Suryajyoti, Moser Baer, Rolex, NITCO, Sujana, Mahavir Ferro Alloys. Restructuring of Suzlon Group and Moser Baer is around Rs 116 crore, and for Sujana Group is around Rs 152 crore. 
 
Q: Your margins have shrunk this time. What is your guidance on the margins?


A: Domestic margin is showing improving trend. Our cost has come down to 7.55 percent in this quarter. Yield and advances have come down due to base rate reduction. Our bulk deposit has been brought down to less than 10 percent and CD is only 4.5 percent. We are aiming that as per the margin which is at the moment is average 2.59 percent, of course we have to look at the RBI credit policy if there will be a pressure to reduce our base rate as we go forward.


Other than that on the cost of deposit front we expect some improvement to come. Immediately the priority is to go back to 2.85 percent, with the long-term objective of three percent of our NIM. This full year I would have more than Rs 460 crore of interest reversal apart from the base rate effect.


So that has brought down my yield and advances. In spite of that yield and advances domestically even today remain at 11.40 percent. Internationally, the yield has moved down. Earlier it was 2.05 percent, now it maybe 1.52 percent which also as we go forward have a chance to improve upon.


 



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First Published on Apr 29, 2013 06:26 pm
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