Aim to sustain NIM at 2.8% in FY12: Vijaya Bank

HS Upendra Kamath, Chairman, Vijaya Bank aims to contain gross non performing assets (NPAs) to the level of less than 2% in the remaining nine months with 100% system driven NPA.

Kamath said, "Our gross NPA stood at around 2.83% and in absolute terms it was at Rs 1,449 crore up by about Rs 190 crore compared to March. This was partly on account of spillover effect of March 2011 Q4." The bank has set up a separate recovery wing in the head office to focus on recovery. The performance on the recovery front is expected to be be robust in the months to come. The state-run lender's net profit slipped more than 58% in Q1FY12. It stood at Rs 72 crore against Rs 173 crore in the corresponding quarter last fiscal year. Net interest income (NII) too fell 37% to Rs 343 crore from Rs 545 crore year-on-year. The bank aims to sustain net interest margin (NIMs) in the range of 2.7- 2.8% in FY12. Below is the verbatim transcript of the interview. Also watch the accompanying video. Q: Could you tell us about the asset quality this time and the spike that you saw on your gross NPA levels? A: Our gross NPA levels stood at around 2.83% in terms of percentage and in absolute terms it was at Rs 1,449 crore up by about Rs 190 crore compared to March. This was partly on account of spillover effect of March 2011 Q4. Vijaya Bank achieved 100% system driven NPA in March itself. There were a few accounts which were borderline cases which slipped during the current quarter. But the point is, though there were slippages, the cash recovery and upgradation also were very robust. Therefore, the net addition to gross NPAs was Rs 190 crore. We have nine more months at our disposal and most of these accounts that have slipped have asset backing. I have no doubt in my mind that, as we go forward in the financial year we will be able to recover or upgrade these accounts. Q: You have shifted completely to 100% system based NPL measure what do you think you could do in terms of your gross NPAs? How much do you think you could bring it down by from 2.83% level? A: The current year has been declared as the year of recovery and retail. We have set up a separate recovery wing in the head office so that there can be focused attention on recovery. I am very hopeful that in the remaining nine months our performance on the recovery front will be robust. We should be able to contain our gross NPAs to a level of less than 2% hopefully. Q: What were your net interest margins (NIM) this quarter? A: Our NIM for the current quarter was 2.32%. Q: What is your outlook then with regards to our NIMs in FY12 and also if you could outline your credit growth for this quarter and your expectations for FY12 considering the environment that we are working in now? A: The NIMs are down to 2.32% normally in Q1, in the first two months, there is a tendency for the topline to decline. From mid May onwards credit started picking up and therefore we could get the benefit of interest income only towards last month which is June and therefore there has been fall in the NIM. But with the kind of sanctions we have I am hopeful the average advances will pick as we go forward. We should be in a position to maintain NIMs at around 2.70 to 2.80% for the full year. On the credit growth front, in the month of April we have projected a topline growth of 25%. Based on the numbers we have firmed up in our business plan conference. Subsequent developments have happened in the economy and with the rate action on the interest rate front we may not be in a position to reach that kind of growth. Hopefully, based on the sanctions and the steps that we have taken on retail and micro, small and medium enterprises (MSME) front, we should be easily be in a position to achieve growth levels of around 20%. Q: Last quarter you had some higher pension expenses which resulted in higher employee cost has that tickled into this quarter as well? A:  The one time provision of Rs 181 crore which we had to make in the Q4 on account of retirees is a non-repetitive, non-recurring expenditure. There is no such provisioning or charge on the P&L in the Q1. But the normal continuing employees amortize the amount which works to around Rs 120 crore per annum has been proportionally provided for in Q1. Q: Do you think going forward you can maintain the net interest margins at these levels or because of the way interest rates have been rising you think perhaps that would go ahead and put pressure on your margins in FY12? A: When we articulated our business plan guidance we maintained that we should be in a position to keep our NIMs at around 3%. From that level, we have come down to 2.70% to 2.80% is what we feel is sustainable. The interest rate tweaking which the RBI has done will be transmitted to our customers by revising our base rate and the BPLR suitably.