Troubled by priority-loans, blessed by high capital: DCB

Speaking to CNBC-TV18 from the sidelines of the Kotak Mahindra BFSI Conference 2012, DCB CFO Bharat Sampat explains the various aspects regarding the status of the bank.

Though DCB has been performing well, Bharat Sampat adds that the cash flow of the SME and MSME businesses are under strain due to delayed payment. He points out that the bank's chief source of pressure emanates from last quarter's priority sector lending which was at lower than commercial rates.
He concludes that the bank is sufficiently capitalised to pursue growth plans for the next 18-24 months. Below is an edited transcript of the interview on CNBC-TV18. Also watch the accompanying video.
Q: It has been about a month since your Q4 results were announced. What are the trends in the first quarter of FY13?
A: I won't comment specifically on the numbers, but the level of slippages are the same. In the last two years, DCB has been consistently performing and there have not been any major slippages in small and medium enterprises (SME), micro-, small and medium enterprises (MSME) or mortgage segments.
The cash flow of the SME and MSME businesses are under strain due to delayed payment.
The corporate segment is a significant contributor for a bank of our size, but at this point of time we do not foresee any specific account giving us trouble. Q: The last quarter was led by the agri and corporate sector. Do you think a unfavourable monsoon could be a big of dampener?
A: In the agri segment, the bank does not lend directly to farmers. The bulk of our lending is in financing commodities against warehouse receipts. Since the bank aids commodities which have already been harvested, there is little probability that any change in the monsoons would impact the bank. Q: What about the net interest margins? There was a sequential decline of about 25 basis points due to a slightly weak CASA ratio. Are you taking any steps to augment that? Are you planning to take aggressive initiatives in increasing margins?
A: DCB's net interest margin came down from 3.37% in Q3 to 3.12% and the margins will be under pressure for some more quarters. But more or less, the margins are to be at 3% and for the full year, margins are expected to reach around 3.1%.
The main source of pressure is from last quarter's priority sector lending which was lower than the commercial rates and is to continue for the next two quarters. Also, deposits across the industry will be reprised till June and will negatively impact margins. Q: What is the estimated gross and net NPA for this quarter?
A: I wouldn't be able to comment on the specifics, but I can estimate the bank's gross and net NPA. Gross NPA was at 4.4% and half of it is on unsecured personal loans, which have not been fully covered.
In fact net NPA is 0.57%, which reflects coverage ratio of 91%. Though we hope there is no significant variation, we are planning to reduce NPA. Q: What is the source of the pressure on asset quality? In the last quarter it was corporate accounts. Are you witnessing the same trends this time around as well? What about recoveries?
A: Last year, the credit cost came through corporate accounts. There have not been significant slippages in the key growth-focus areas of SME, MSME and mortgage.
We continue to collect strongly in unsecured personal loans which are a fully-provided book and therefore come back as a negative provision. Going forward, we do not see any slippages in significant accounts. Q: How well capitalised is the bank?, Did you raise money via QIP? How much does that account for? Would you enter the market to raise equity capital in the next one year?
A: Our current capital adequacy ratio is 15.41%, of which 13.81% is tier-I. So we are sufficiently capitalised to pursue our growth plans for the next 18-24 months.