Federal Bank manages to halve slippages in Q2

Aluva-based private lender Federal Bank reported a 12.52% rise in its second-quarter profit to Rs 215.10 crore compared with Rs 191.16 crore in the corresponding year-ago quarter. The bank has been focusing on reshaping of the portfolio for the last 12-18 months, Shyam Srinivasan, MD & CEO told CNBC-TV18.

"We have restructured a couple of corporate accounts," he said adding upgrades, recovery stood at approximately Rs 117 crore for the quarter.
He said the bank has managed to halve slippages for the quarter. During the quarter, Federal Bank saw an addition of Rs 145 crore in fresh slippages, which however is much lower than Rs 285 crore it had in the year ago period.
"Retail and SME segments have started trending in the right direction; home loans and gold loans are doing well," he said.
Also read: Bank of Baroda Q2 net up 11.6% to Rs 1301 cr, NPAs climb Below is an edited transcript of the interview on CNBC-TV18. Q: The growth looks pretty tepid quarter-on-quarter and even on a year-on-year terms, 7 percent growth in Net Interest Income (NII). How does growth look from hereon for the full year, in terms of NII as well in terms of credit and deposit?
A: Over the last 12-18 months, we have consciously been focusing on substantially reshaping our portfolio. This 7 odd percent that you see is a function of some things that have gone up in areas of choice and in some areas we have consciously debugged.
 
We are not usually alarmed by the net number because the real picture is in the disaggregated numbers. Retail and SME, which has been the focus areas have started trending in the right direction, which is encouraging. Specifically, gold loans have been doing well and home loans in this quarter were good.
One balance sheet growth, both on assets and deposits we consciously debugged. We have run down almost Rs 5,000 crore bulk deposits, primarily because we didn't see that adding much value. So as both assets and deposits are growing in the retail-SME area, and average balances are growing, things are good.
Our income growth is lower than the earlier run rate, primarily because of the one-time contra entries on income and also the increase cost of NR deposits. So, the way ahead would be if we keep the momentum of retail-SME trending well. Then, we are quite confident of keeping the trajectory in the right direction. Q: Can you take us through the fresh slippages this quarter and what were the restructured assets?
A: The ratio is a function of the denominator. We look at it as a coincidence-basis because the denominator is lower, the ratio looks adverse. In reality, the new slippages have halved. This quarter was about Rs 144 crore versus Rs 285 crore in the previous quarter and a similar number in the quarters before that.
So, actually in pretty adverse market conditions our slippages have halved, primarily because retail and SME have been trending well and we did not have any slippage in any of our corporate accounts this quarter. On restructure advances, this quarter was about Rs 230 crore. A couple of corporate accounts have been restructured.
_PAGEBREAK_ Q: How is the trend- if you have to crystal-ball gaze for a bit? Have you stabilised for good or do you see the tealeaves indicating trouble ahead?
A: Some of the accounts that are going through challenges primarily market-led. We have had a fairly tight engagement this quarter and they have come out okay. I can’t quite say that all of them will remain in the same fashion. If the environment, say the macro fundamental starts improving, it will have a bearing on their performance. But otherwise, we are signaling that there are 4-5 accounts that we need to closely work with and make sure that they don't go into impairment.
That said, our underlying portfolio, which is what we have been focused on and sacrificed growth for that has come out well. If you see sequentially for six quarters, the retail-SME has been improving. We haven’t been challenged by any new names other than specific names and that trajectory continues, which is encouraging. Q: Net Interest Margins (NIM) improved to 3.58%, a 16 bps. Is there scope for more in the second half?
A: Our full year forecast is around 3.6 percent , which is what we guided at the beginning of the year. Last quarter was more an aberration because of the one-off mark-to-market (MTM) impact and that doesn't happened in this quarter. I would tend to believe in 3.6%, thereabout should be where we will have our full year NIMs. Q: In the previous quarter you did restructuring of around Rs 230. What can we expect for the remaining part or the second half of the fiscal in terms of a possible amount, which you would possibly be restructuring on a quarterly-basis? What sort of accounts would you possibly be most worried about?
A: There is no known name in the restructuring pipeline, but these things have a mysterious way of cropping up towards the latter part of any quarter. So, I won’t say that there are none that will come up, but I don’t see anything substantial.
One of the accounts, which has been okay with Federal, but at an industry-level is facing challenges, we are conscious of them. I wouldn’t like to name it, but it is a fairly largish public sector that we are looking at. But outside that, there is no big-ticket restructuring, which is pending.
_PAGEBREAK_ Q: What about upgrades and recoveries this quarter? What is the trend going forward because most banks have become extremely aggressive on that front to curtail the asset quality worsening?
A: This quarter, upgrade plus recovery was about Rs 117 crore. We surely see that trajectory continuing. But I want to point out that we haven't written-off much in the last 12-18 months. So, the opportunity to recovery will start diminishing in the quarters ahead. But this quarter was about Rs 117 crore. I see similar trajectory for the next 2-3 quarters, slightly better if we have one or two good accounts coming through. Q: Your total restructured book at the moment is Rs 1830 crore. Of this how much do you think will become Non Performing Loans (NPLs)? How many do you think will remain healthy?
A: The normal trajectory has been between 15-18 percent on a regular-basis. But, in this restructuring, you may recall last year, at the end of the financial year March, we had a chunky Rs 900 crore odd that was restructured.
So almost half of this pool is actually two or three tickets, which has been restructured with a very deep repayment plan. Air India is one, which everybody is aware of. I don’t see any challenge on that, even in the time to come. Yes, they are going through their pangs of pain. But, I think fundamentally they would stay alive. So, I don't see it being more than at worse 18 percent.