Increase in gross NPA is not worrisome: BoI

N Seshadri, ED, Bank Of India explains to CNBC-TV18 that the increase in gross NPA from 3.02 in the previous quarter to 3.42 in the current quarter is not a cause for concern or worry. Seshadri adds that the increase in NPA is due to stress faced by businesses across the economy which need to be supported and estimates that asset-quality will improve over the next three-to-four quarters.

Below is an edited transcript of the interview on CNBC-TV18. Q: How has asset quality disappointed in this time quarter? What was the source of the pressure and do you think it could get worse than the gross NPA of 3.5 percent that has been reported this quarter?
A: No. I don't think it is a disappointment. Our gross NPA, which was at 3.02 percent last quarter increased to 3.42 percent. I don’t think that a  40-basis point increase in the gross NPA for a bank of this size and volume is something that should be worrying.
Most of the loans are to businesses that are operational and have a cash flow. You are quite aware of the global and domestic economic scenario. We would not really get too much worried on specific accounts and looking at the overall situation, I don't see this 40-basis point increase in gross NPA to be worrisome as they are not write-offs.
Provisions have been against them on a prudential basis and we expect each of these assets to turn positive as we go along. The businesses require a bit of support for continuing operations. Q: What are the expectations of slippages as well as restructured assets in Q3?
A: We have attended to accounts meant for restructuring and those that face stress as on today and on a very prudential basis, provisions have been made against them. Though I would not be able to clearly tell you what lies in the pipeline in the next two quarters, I think there will be strain in the economy in the next couple of quarters and it needs to be supported. This forecast is based on the scenario that we have faced for the past 12 months.
I don't think that these problems are going to disappear overnight and they will have to be dealt with.  But it is important to note, that the analysis and assumptions arrived at the time of sanction of these loans have not materially changed except in for a certain amount of a slowdown in demand which has led to lower capacity utilisation and the increase in financial costs.
But they have the capacity to bounce back and their viability has not faded. They require extra time in terms of meeting commitments and I estimate that in the next couple of quarters they will bounce back. Q: What are the restructured accounts this quarter in terms of the sectors that have you restructured and where does the total restructured asset stand at right now?
A: In fact, our total restructuring this quarter is not much- about Rs 810 crore. But a major portion of this exposure is from the hospitality and hotel industry which maybe in the next two or three quarters will come out of restructuring.
The other portions are all normal restructured loans. Overall, our restructuring loan book is about Rs 17,000 crore which is roughly about 7.5 percent of our overall credit portfolio. We have not seen much of a slippage which constitutes 12-14 percent of the loan book. But the restructured segment per se, is not of great concern to us. Q: Is a gross NPA of 3.42 percent the worst that Bank of India has seen and will asset quality recover from this level?
A: There are peer banks whose gross NPA could be even higher. We have a large loan-book and are financing all segments of the economy. I don’t think that the increase in the gross NPA, which is definitely high at 3.42, will immediately fall.
But as long as they are able to support the restructuring and as long as we are able to help them, the NPA will fall to 2 or 2.6 as the economy improves. I don’t think that a gross NPA of 3.5 percent is a negative given the overall economic situation that exists today. Q: What were the recoveries as well as upgrades seen in this quarter and any signs of how much they would be in the next half of the year?
A: While this quarter did not see very substantial recovery - hardly about Rs 510 crore of recovery in upgradation- I expect that out of the provision and of the slippage seen in this quarter, a substantial portion would get upgraded or recovered over the next couple of quarters.
We would definitely, on a full year basis, bring the gross NPA closer to about 3.3. I don’t think these problems are going to disappear quickly, but I think a gross NPA of 3.25-3.5 is something the bank that will be able to definitely meet. Q: What is the target, in terms of net interest margins, that Bank of India has set out?
A: Our domestic net interest margins have risen from 2.8 to 2.9 percent. With our emphasis on cost control and deposit interest cost, I think we would be able to post a domestic NIM of 290-300 basis points. On our overseas NIMs, there has seen some pressure and the margins have declined by 15-20 basis points. I estimate that we would be able to achieve a global NIM of 2.6 percent and a domestic NIM of 3 percent during entire year. Q: You indicated that midcaps have been under stress - any particular sectors?
A: No, the stress it is not specific. Ultimately, entities that have commenced expansion and investment in capex assuming the process of expansion would take place according to plan, are under stress and this is across the sectors.
However the viability of the business plans remain and there has been a bit of a tightening of the belt and we have observed  that they will require handholding during the next three-to-four quarters before they bounce back. Some of the sectors under stress are textiles and metal products.