Hope to improve NIMs by 20-25 bps in FY13: IDBI Bank

IDBI Bank has reported its fourth quarter earnings which saw a its net profit jump 49.4% (YoY) to Rs 770.78 crore. The net profit growth was helped by a fall in tax liabilities with the tax expenses for Q4 falling by 59% to R150 crore over the previous quarter.

In an interview to CNBC-TV18, BK Batra, the executive director of IDBI Bank talks about the company’s fourth quarter results. He says the NPAs were down QoQ due to a large number of upgradations and aggressive recoveries which took place. He doesn’t think the bank will reach the same level of NPAs which was there last year.
Batra expects to improve net interest margins by 20-25 bps in FY13. “The composition of our liabilities and assets is such that when the interest rates begin to slide it goes in favour of improving NIMs,” he adds. Below is an edited transcript of his interview. Watch the accompanying video for more. Q: Your gross NPAs aggregate and your net NPAs aggregate as well as percentage of the total assets have all gone down quarter on quarter. Though it is a big jump year on year, from Q3 to Q4 it has shown a decent fall. Is that sustainable or do you think the woes in the economy will bring back the trend higher in the FY13 quarters?
A: During the last quarter, the NPAs have gone down vis-à-vis December 2011 because of aggressive recoveries and also because of a large number of upgradations that have taken place in respect of restructured assets and earlier NPAs where recoveries have taken place. That is the reason why our gross NPAs and net NPAs both have come down vis-à-vis those levels.
I believe most of the stress that was there in the assets has been taken care of. Some of it does remain in the system. Some of it is there in the form of references which are still pending with CDR and some restructuring which might get done during the first or second quarter. But a major proportion of it has been taken care of during the last year. So, I don’t think we will reach back the same level of NPAs which was there during the last year. Q: Is it now a done deal that when you say your restructured assets paying back for eight quarters you now treat them as standard assets even when you give us your NPA number?
A: It is not so. I am talking about the NPAs which have become performing assets not about the restructured assets. Upgradation means upgradation from the non-performing category to the performing category. In such cases, the percentage of provisioning which has been already provided is normally higher than the fresh NPAs and therefore the impact of upgradations is significant. Q: Take us through your fresh slippages this quarter. Where did you see the maximum pressure in terms of fresh slippages and also your restructured loans this time around?
A: Our fresh slippages happened in respect of aviation, in respect of one large telecom infrastructure case, these are the major cases. The rest of them have been medium and smaller cases. The aggregate amount has been taken care of by a large number of up-gradations. As far as restructuring is concerned, on a net basis, there has been an addition of about Rs 500 crore of restructured assets during the quarter. Q: What is the number on fresh slippages during the quarter?
A: Fresh slippages into NPAs have been about Rs 400 crore. Q: Your NIMs has an improvement on a sequential basis as well as on a year on year basis. What could the trajectory of your NIMs be in FY13?
A: Our NIMs have been steady. Over the last three years, it has moved from less than 1% to more than 2% and during this year 2011-12 despite difficulties and challenges of increase in NPAs and increase in the level of provisioning we have managed to retain the NIM around the same level. But during 2012-13 we are hoping that we should be able to improve a bit maybe by about 20-25 basis points. This is again connected with what I said earlier that we should see lesser slippages this year. The composition of our liabilities and assets is such that when the interest rates begin to slide it goes in favour of improving NIMs. Q: We still have some troubled companies and Kingfisher is one of them which has not yet gotten anything by way of private equity just yet. We also have companies like Bharti, GTL, we have trouble spots with respect to power companies, SEBs are not quite out of the woods. Why is there a confidence that there will not be more slippages and more NPL in the aggregate number in the first two quarters of FY13?
A: If I specifically talk about IDBI, the companies that you named most of them have already been restructured and provided for last year so there is very little that remains to be done during this year. Even though some of the companies might come into restructure on NPA category, I still believe on the aggregate level it is going to be less than what was there during 2011-12.
_PAGEBREAK_ Q: IDBI has a finger on the pulse of the industry also since you lead the corporate debt restructuring cell. Do you think the banking industry will not quite replicate this or that there will be more trouble before troubles ebb away?
A: Even there I believe that it is a pause time; lot of work has been done last year by the entire banking industry to set assets into restructure mode or to give them relief where it was necessary or to straight away categorise them into NPAs and go for recovery action where it was not desirable to restructure or it was not the right option. Therefore on an overall basis, it looks to me that this will be a pause and we should not be seeing the same level of NPAs as has been there during 2011-12.
I do concede that in the infrastructure sector the stress still remains and is visible but we believe that lot of measures are contemplated and some of them are in the works with regards to putting these projects back on track. Once the issues pertaining to these sectors are resolved to the satisfaction of all stakeholders by the government, I believe they also will get going.
There are signs of that happening and that is what gives me hope and optimism and to a certain extent confidence that these assets also will not fall in the NPA category. They might need some adjustment here and there in respect of their repayment obligations and their moratorium period etc but more than that I do not think that a large chunk will fall into the NPA basket making the overall number larger than what was in 2011-12. Q: One thing that stood out this quarter was the non interest income which actually was quite significant for the bank this time around. Take us through what happened this quarter and what is the trend that we can expect in non interest income for FY13?
A: Our non interest income has always been very healthy and very robust. The composition of our assistance to our corporates in particular is fairly well tilted in favour of non fund based facilities as well where 40% of our fund based facilities are in the shape of non fund based facilities and that is what gave us a healthy fee income.
In addition to that, we continue to be a prime player in the syndication markets. Therefore, our debt syndication and underwriting deals also fetch us very good income. We are very good in transactions and banking as well so all these put together really give us a very good component of fee based income. Though this year we have not been as lucky to have exceeded last year that is 2010-11 figure of overall fee based income nonetheless it still has been fairly good.
We are close to last year’s figures and during this year if things improve, if the investment climate improves and if the overall business gets into a positive mode I think the fee based income should get a further leg up. Q: What is your fund and non fund based exposure to infrastructure? What is your loan and deposit growth expectation for FY13?
A: In the infrastructure space, this ratio of non fund based to fund based is still better. In fact, the fund based exposure would be around Rs 36,000 crore vis-à-vis non fund based exposure of maybe about Rs 30,000 crore. So nearly 70% of the fund based exposure in infrastructure comes from non fund base. Q: Infrastructure exposure would be how much of the total book?
A: It is about 20% to 23% odd. Q: What are your expectations of credit and deposit?
A: As far as credit goes, where the current year is concerned, IDBI Bank will continue to follow a calibrated growth policy. We are targeting to grow by around 15% during this year which is almost the same number on which we grew last year. As far as deposit growth is concerned, we have been funding our growth during last two-three years not only through deposits but through refinancing and international borrowings as well.
We will try to see that a significant portion of our credit growth gets funded from sources other than deposits as well. Even within deposits we are increasingly focusing on more CASA and more retail term deposits. This year, our CASA has actually grown to 24% vis-à-vis 20% last year and our CASA per branch is perhaps the highest in the country. We will continue to give a lot of emphasis to that and also on retail term deposits so that our cost of funds remains within check.