Aim to maintain margins at 3%: State Bank of Mysore

Anuj: So, is the worst of asset quality pressure behind and what kind of asset quality can be seen in the next financial year?A: State Bank of Mysore was amongst the top five in terms of Gross NPA in December 2013. If you look at the last five quarters, every quarter we have been reducing it by a quarter percent or 30 bps or so. So, yes, we were a little aggressive in terms of identification and in terms of write-offs also. Now, we are seeing the recovery part of it. We are well provided. Our GNPA, provision coverage ratio (PCR) is at above 69 percent. The slippages and their pace during the previous year, all the four quarters, have come down substantially.Ekta: I just wanted a couple of figures from you. How much did you sell in terms of your loans to asset reconstruction companies (ARC) this quarter and how much did you traditionally do?A: As an example, in the last year, we had done about Rs 800 crore sales to ARC of which in the last quarter it was only Rs 60 crore. In the first quarter of the year, we had two or three accounts which we had sold out to ARCs. After the Reserve Bank of India (RBI) guideline changed from five percent to 15, the capacity and business which was done through the ARC came down. Same happened for overall industry also.

Ekta: So, that means you had an organic improvement in your asset quality this quarter. What were your recoveries, upgrades and your fresh slippages? I have the figure for last quarter which was Rs 421 crore which were your fresh slippages. Was it higher, lower or same?A: Slippages during the year was Rs 1,800 crore and the net reduction in NPA is Rs 700 crore. So, Rs 2,500 crore was the aggregate recovery and improvement which happened in the NPA book.Anuj: Your margins came down this quarter a bit, not by much. What is the outlook on that in the next few quarters?A: Over the last two years, in every quarter, it was a very tight band in which we were operating - five bps between 3.03 to 2.98. This quarter, it was 2.98 but we are reasonably looking at three percent level.

Ekta: We have spoken extensively about asset quality but we have seen a couple of non-banking financial banking companies (NBFCs) such as M&M Finance as well as L&T Finance Holding, which have reported improvement in gross non-performing loans (NPL). Though they might be niche in their own sectors and focus, do you see the industry maybe seeing a bit of recovery or the gross NPLs have bottomed out and we could see a little bit of sustainability improvement?A: I would go segment-wise on that. If you look at the corporate segment, recovery on the banking side is yet to be seen. On a net basis, our corporate banking book had not grown during the year but what we have done is shiftng our balance sheet corporate exposure assets from 65 percent to 55 percent. We have gone on to the retail side.Retail-wise, we are located in Bangalore; a fairly healthy city in terms of housing. Our personal loan book aggregate on an average basis went up by 16-17 percent and our housing portfolio went up by 22 percent. We intend to grow on that further. The expansion of our retail book during the current year will also be more than the corporate book.Ekta: And what was the credit growth for you this quarter and what do you envisage, maybe, in FY16?A: The average credit growth for the bank was a little over nine percent.Ekta: And for FY16, when do you see a pickup?A: Corporate side, we don’t see any pickup in the first half at least. Second half of the year, let us see. We are looking at a major growth only in the retail side as of now.Anuj: Now that the merger of subsidiaries with State Bank is put on hold for at least the foreseeable future, what is the outlook going forward for you as a standalone entity?A: State Bank of Mysore is actually located in Karnataka and we are a niche market over there. After Mumbai, Bangalore has the largest concentration of public sector banks. As on the retail side, especially our current account and saving account (CASA) is above 33 percent. It is the highest amongst all public sector banks. That is what gives us confidence. Our cost of funds is fairly okay. Aggressively going on the retail side, the housing and auto loans, Bangalore is amongst the Mercer’s analysis of 230 cities. It is the top Indian city which is ranked 122. In terms of NPL also, it is a little better. That gives us confidence that we will grow.Ekta: This is a two part question. One, how did you read the PSL norms that came out on Thursday and secondly, in terms of your gross NPLs, will we see further improvement in maybe this quarter? A: Taking your second question first; yes, we will definitely see an improvement. The four percent NPL levels are because there was not much of credit growth. The denominator did not grow, which we think will happen now. There are some recoveries which we have already lined up. They will improve the asset quality further marginally; not to this extent but there will be an improvement which will happen.And the other question regarding the priority sector norms, we are fairly well-served. If our agri priority sector percent was about 18.5 then the only shift is doing the direct and indirect thing away. Only the eight percent in small and marginal farmers could be a little bit of an issue. The positive side is the affordable housing up to Rs 35 lakh project cost and Rs 28 lakh loan. They will be covered under priority sector. That is a huge benefit for us.